The Rise of Crypto in Sanctions Evasion: A Call for Stronger Blockchain Intelligence

In 2024, sanctioned entities received $15.8 billion in cryptocurrency — an astonishing 39% of all illicit on-chain transactions. As geopolitical tensions escalate, bad actors are turning to blockchain-based financial systems to circumvent economic restrictions, reinforcing the need for real-time monitoring, compliance, and enforcement mechanisms. The crypto industry stands at a crossroads: Will it enable financial crime, or will it step up to enforce transparency and accountability?

The Geopolitical Battleground: Crypto and Sanctions Evasion

Sanctions have long been a powerful tool for international policy enforcement, targeting rogue nations, terrorist organizations, and money laundering networks. However, with decentralized finance (DeFi) and permissionless blockchain transactions, sanctioned entities now exploit new avenues to evade these restrictions. Key developments in 2024 include:

• Russia’s Wartime Economy Under Siege: International sanctions and law enforcement actions have increasingly targeted financial enablers, money laundering networks, and infrastructure supporting Russian military procurement, cybercrime, and espionage.
• Iran’s Escalating Crypto Usage: Outflows from Iranian exchanges surged 70% year-over-year as the country deepened economic and military ties with Russia. Several Iranian-linked crypto entities, including Arzpaya, Arzypto, Bidarz, and Bit24, as well as payment gateway Asan Card, have been identified as key facilitators in these illicit transactions.
• The Compliance Balancing Act: Exposure to Iranian exchanges declined by approximately 23% from 2022 to 2024, indicating progress in regulatory efforts. However, decentralized protocols like Tornado Cash and no-KYC exchanges continue to pose challenges to enforcement.

Blockchain Intelligence as a Critical Enforcement Tool

While bad actors continuously adapt their laundering techniques, blockchain intelligence has proven to be an essential weapon in counteracting illicit finance. The transparency of blockchain offers an advantage — every transaction leaves an immutable digital footprint. Regulators and compliance teams leveraging advanced analytics and blockchain forensics have demonstrated significant successes:

• Law Enforcement Disruptions: Takedowns of major illicit networks, including Russian money launderers and terrorist financiers linked to Hezbollah and the IRGC, have showcased the effectiveness of on-chain investigations.
• Sanctioned Wallet Freezes: Authorities have increasingly imposed restrictions on known addresses tied to sanctioned entities, preventing their use on compliant exchanges and platforms.
• Strengthening Compliance Across the Ecosystem: Major exchanges and financial service providers have tightened controls, improving their ability to detect and report suspicious transactions. Still, loopholes remain, particularly in decentralized environments.

The Path Forward: Collaborative Regulation & Industry-Led Solutions

The challenge is clear: Without robust monitoring and enforcement, cryptocurrency risks becoming the preferred financial tool of sanctioned regimes and illicit actors. However, the industry has the potential to create a more resilient and compliant ecosystem. Moving forward, we must:

1. Enhance Blockchain Analytics Capabilities — Invest in AI-driven monitoring systems to flag suspicious transactions in real-time.
2. Expand Sanctions Enforcement Partnerships — Strengthen collaboration between governments, exchanges, and compliance firms to share intelligence.
3. Regulate DeFi Without Stifling Innovation — Implement pragmatic policies that balance innovation with risk mitigation in decentralized protocols.
4. Improve KYC and AML Standards — Ensure all fiat on-ramps and off-ramps adhere to strict compliance requirements, limiting illicit actors’ entry points into the system.

Leverage BlockScout’s VASP Data & APIs for Compliance

To combat illicit finance and enhance regulatory compliance, BlockScout offers robust Virtual Asset Service Provider (VASP) data and APIs designed to empower businesses, financial institutions, and regulators. Our solutions provide:

• Real-time monitoring of high-risk addresses and entities.
• Comprehensive VASP data to identify illicit actors and ensure compliance.
• API integrations for seamless adoption into existing compliance frameworks.

By integrating our blockchain intelligence tools, businesses can proactively mitigate risks, support enforcement efforts, and strengthen the integrity of the crypto ecosystem.

Get started today by accessing BlockScout’s VASP data and APIs.

The rise of crypto in sanctions evasion is not an unsolvable problem; it’s a call to action. By harnessing blockchain intelligence and fostering a more accountable financial ecosystem, the crypto industry can not only comply with international regulations but also secure its legitimacy and long-term growth.

The time to act is now. Visit us at BlockScout.ai for more information.