Crypto Compliance and Sanctions: Key Cases and Best Practices

The rapid growth of the crypto asset industry has brought transformative opportunities but also unprecedented regulatory scrutiny. Governments and agencies worldwide are intensifying enforcement actions against crypto firms that fail to comply with Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT), and sanctions regulations. This article highlights major enforcement cases—including actions against Tornado Cash, Blender.io, Binance, and Cryptex—and outlines practical steps for crypto businesses to strengthen their compliance programs. From transaction monitoring to sanctions screening and risk-based strategies, you’ll learn essential measures to navigate the evolving regulatory landscape and mitigate risks effectively.

Key Non-Compliance Crypto Sanctions

The decentralized and pseudonymous nature of crypto assets, while offering benefits like enhanced privacy and financial freedom, also makes them a prime target for misuse by bad actors. These vulnerabilities have led regulators to intensify their focus on enforcing stringent AML and sanctions compliance measures to mitigate risks. Below, we explore several high-profile enforcement actions that illustrate how regulators are addressing these challenges, from targeting virtual currency mixers like Blender.io and Tornado Cash to sanctioning major exchanges such as Binance and Cryptex. These cases provide valuable insights into the importance of robust compliance programs for crypto businesses.

• Blender.io (2022): On May 6, 2022, OFAC sanctioned Blender.io, a Bitcoin-based virtual currency mixer, for facilitating money laundering tied to North Korea’s Lazarus Group. Blender processed over $20.5 million of the $620 million stolen in the Axie Infinity hack, one of the largest cryptocurrency heists to date. Additionally, Blender laundered funds for ransomware groups like Trickbot and Conti. This marked the first time OFAC sanctioned a virtual currency mixer, emphasizing the risks posed by mixers in enabling sanctions evasion and cybercrime. The sanctions blocked all Blender-related property within the U.S., underscoring the need for enhanced AML and sanctions compliance in the crypto industry.
• Tornado Cash (2022): In August 2022, OFAC sanctioned Tornado Cash, a virtual currency mixer, for laundering over $7 billion since 2019, including $455 million stolen by North Korea’s Lazarus Group. Tornado Cash also processed funds from the Harmony Bridge and Nomad heists. Despite claims of enhancing privacy, it failed to implement controls to prevent misuse by cybercriminals. OFAC’s sanctions blocked all Tornado Cash property in the U.S. and prohibited transactions involving the platform, highlighting the need for robust AML and sanctions compliance in crypto.
• Binance (2023): On November 21, 2023, OFAC fined Binance Holdings, Ltd. $968.6 million for 1.6 million violations of U.S. sanctions programs. Over five years, Binance knowingly facilitated transactions involving users in sanctioned jurisdictions, including Iran, North Korea, and Crimea, and encouraged the use of VPNs to bypass controls. Despite public claims of compliance, internal communications revealed deliberate management decisions to ignore sanctions risks. The settlement includes a five-year compliance monitoring agreement, emphasizing the need for robust sanctions adherence in the crypto industry.
• Cryptex (2024): In September 2024, OFAC sanctioned Cryptex, a St. Vincent-registered exchange operating in Russia, for laundering over $51.2 million from ransomware and facilitating $720 million in transactions tied to cybercrime. Cryptex lacked effective KYC measures and served as a hub for malicious actors, highlighting the critical need for compliance in the crypto industry.
• Bitcoin Fog (2024): In November, 2024, Roman Sterlingov, the operator of Bitcoin Fog—a darknet cryptocurrency mixer—was sentenced to over 12 years in prison for laundering $400 million in cryptocurrency between 2011 and 2021. Bitcoin Fog processed illicit transactions tied to darknet marketplaces, including proceeds from narcotics, identity theft, and child sexual abuse material. The case highlights the persistent use of mixers to obscure illegal activities and underscores the importance of regulatory vigilance and enforcement in combating crypto-enabled money laundering.

These enforcement actions signal that regulators are holding crypto firms to the same, if not higher, standards as traditional financial institutions.

Compliance Essentials for Crypto Firms: A Step-by-Step Guide

A robust AML and sanctions compliance program is no longer optional—it is a necessity for crypto businesses to operate sustainably and mitigate regulatory risks. Below is a step-by-step guide to building an effective compliance framework:

1. Develop Risk-Based Compliance Programs

Every effective compliance program begins with a clear understanding of your organization’s unique risks. Crypto firms should:

• Conduct a business-wide risk assessment to identify vulnerabilities across products, services, customers, and geographies.
• Perform an impact assessment to evaluate the potential consequences of identified risks.
• Establish a compliance framework aligned with the organization’s risk appetite, including policies, procedures, and controls that address high-risk areas effectively.

By prioritizing a risk-based approach, crypto businesses can ensure that subsequent measures, such as transaction monitoring and KYC, are tailored to the specific needs and challenges of the organization. This foundational step is critical for building a sustainable compliance program.

2. Implement Robust Transaction Monitoring

Crypto transactions often occur at breakneck speed, making real-time monitoring essential. Firms should invest in behavior-based transaction monitoring solutions that identify anomalies, such as:

• Unusual transaction sizes or patterns.
• High-risk jurisdictions or entities.
• Rapid transaction layering indicative of money laundering.

Actionable Tip: Use tools like Merkle Science’s Compass, which integrates AI and behavior analysis to flag suspicious activity and generate actionable alerts.

3. Conduct Thorough KYC and Due Diligence

Knowing your customer (KYC) is the cornerstone of any compliance program. Crypto firms should:

• Verify user identities during onboarding.
• Conduct enhanced due diligence for high-risk customers.
• Reassess customer profiles periodically to account for changing risk levels.
  
  

4. Establish Sanctions Screening Protocols

Sanctions screening ensures that businesses do not engage with sanctioned entities, individuals, or jurisdictions. Firms should:

• Cross-reference customers and counterparties against global sanctions lists, including those from OFAC, the European Union, and the United Nations.
• Regularly update screening systems to reflect new sanctions.

Pro Tip: Leverage automated tools to integrate sanctions screening into transaction workflows for seamless compliance.

5. Conduct Independent Audits

Regular audits help identify gaps in compliance programs and ensure that processes align with regulatory standards. Independent audits can:

• Uncover inefficiencies or vulnerabilities in current compliance workflows.
• Provide actionable recommendations for improvement.
• Demonstrate to regulators a proactive approach to compliance.
  
  

6. Train Employees on AML and Sanctions Compliance

Staff awareness is critical to preventing compliance lapses. Comprehensive training programs should:

• Educate employees on recognizing red flags and responding appropriately.
• Include regular updates on changes to AML and sanctions regulations.
• Involve all relevant departments, including customer support, compliance, and IT.
  
  

7. Implement Timely Remediation Measures

When issues arise, swift and decisive action can mitigate the risk of regulatory penalties. Firms should:

• Investigate potential compliance breaches immediately.
• Implement corrective measures, such as updating policies or retraining staff.
• Communicate actions taken to regulators to demonstrate commitment to compliance.
  
  

The Importance of Collaborative Solutions

Beyond individual efforts, the crypto and Web3 communities must collaborate to address systemic challenges. Decentralized platforms, for example, can integrate community-driven governance models to detect and deter malicious activity. Meanwhile, partnerships between crypto firms and regulatory technology providers can streamline compliance efforts across the industry.

How Blockchain Analytics Company Merkle Science Can Help

Merkle Science provides cutting-edge tools designed to simplify compliance in the crypto space. Our Compass solution uses behavior-based transaction monitoring to identify risks, while Tracker enables detailed tracing of illicit funds. By integrating our platform, businesses can:

• Detect and prevent exposure to sanctioned entities.
• Simplify KYC and sanctions screening workflows.
• Respond effectively to evolving compliance challenges.

Regulatory enforcement actions underscore the urgent need for crypto firms to prioritize AML and sanctions compliance. By implementing a comprehensive, risk-based compliance program and leveraging advanced tools like the ones offered by Merkle Science, businesses can not only mitigate risks but also build trust with users and regulators. In an industry that moves as fast as crypto, proactive compliance is key to staying ahead of the curve.

Get started with Merkle Science today to build a robust compliance program that meets your business needs. Schedule a demo now!