Crypto’s Hidden Risk Layer

In our previous blog, we examined the darker side of the crypto industry by highlighting scams, frauds, and court cases that underscore the legal risks in this sector. In this follow-up, we focus on the tools and protocols that bad actors may actively exploit to move, conceal, and cash out illicit funds as we explore how the misuse of mixers, privacy wallets, cross-chain bridges, fiat off-ramping platforms, among other services, can pose serious risks for persons operating in the digital assets sector.

In the crypto ecosystem, different services (or protocols) can be used, at any point in time, by bad actors and these are very dynamic and highly adaptable (according to Chainalysis’ 2024 Crypto Crime Report, Feb. 2024). Some of the crypto services (or protocols) used by bad actors, separately or combined, to move, hide and cash out illicit finance include, but are not limited to:

  • Mixers/Tumblers – These are tools, which are also known as blenders, which enhance user privacy and make transactions more anonymous (Perper, 2023). Mixing services, also known as tumblers, allow users to co-mingle their crypto assets with the aim of obscuring the original ownership and breaking the link between sent and received funds. For example, Tornado Cash, a US-sanctioned virtual currency mixer, was the source of $137.6 million of crypto assets processed by Non-Fungible Token (NFT) marketplaces and the laundering tool of choice for 52% of NFT scam proceeds before being sanctioned by the Office of Foreign Assets Control (OFAC) in August 2022.
  • Privacy wallets – These are non-custodial wallets which utilise wallet software that provides privacy-enhancing functionality.
  • Unregistered or unregulated crypto exchanges.
  • Cross-chain bridges – These allow users to move funds from one blockchain to another. All of this activity happens on-chain and no centralised entity ever takes custody of the funds. Use of bridge protocols for money laundering purposes grew substantially in 2023 based on Chainalysis’ 2024 Crypto Crime Report, Feb. 2024.
  • Fiat off-ramping services – These convert cryptocurrency into fiat currency e.g. gambling services, crypto ATMs etc. (see Chainalysis’ 2024 Crypto Crime Report, Feb. 2024).
  • “Trade-based money laundering” (TBML) – This is a well-known method of transferring illicit funds between accomplices while disguising them as proceeds of trade. “In a typical TBML scheme, two illicitly established companies initiate a fraudulent trade deal, massively over- or under-stating the price, quantity or quality of the assets being traded. A fraudulent invoice is issued, allowing the recipient of the goods to either overpay or underpay depending on which way the funds are flowing. The result is that illicit funds are transferred and invoiced under the guise of a trade deal.” (see Elliptic’s 2022 Report on NFTs and Financial Crime).

The reality is clear that illicit finance is not confined to crypto as it exists across both centralised and decentralised financial systems. However, the speed, anonymity, and borderless nature of blockchain technology make certain crypto services particularly attractive to bad actors. As the crypto landscape becomes more complex and adaptive, vigilance, due diligence, and legal awareness remain paramount and ignoring the above risks can lead to costly consequences, both legally and financially. For investors, founders and professionals in the digital assets space, the path forward requires more than just innovation, it demands informed decision-making and investing. By staying vigilant, practicing rigorous due diligence, and acquiring and maintaining a strong grasp of the legal and regulatory landscape, you can seize opportunities with confidence and better safeguard your investments and ventures against these threats.

 

If this information resonates with you; or you need legal assistance navigating this area, feel free to reach out at info@tenorequelegalandconsulting.com. You can also explore these resources – Crypto Crime Prevention Tips for Investors, Crypto Scams, Crimes & The Courts, 2025 Cryptocurrency Investigation in T&T, “De-risking, Re-risking & Financial Crime in this era of alternative finance” by Bellina Barrow, USA & Canada Join Forces to Combat Crypto Scams, The Trinidad & Tobago Securities and Exchange Commission and the Financial Intelligence Unit of Trinidad and Tobago for more information.

Crypto Scams, Crimes & The Courts

In our previous blog it was highlighted that while digital assets offer exciting opportunities, they also demand vigilance, caution, due diligence, and legal awareness. This is due to the risks of cryptocurrency being used by bad actors to commit financial and other crimes. In this blog we will explore the darker side of cryptocurrency through high-profile crypto scams and court cases for you to appreciate why vigilance, due diligence and legal awareness are non-negotiables in the digital assets space.

Crypto companies, exchanges and their founders have been in the global news, and in courts worldwide, for crimes, financial crimes, poor governance, corporate shortcomings and many other reasons.

Notable scams or collapses involving crypto

Here are some notable scams or collapses involving crypto:

  • Terraform: Terraform Labs PTE, Ltd. and Do Kwon were held liable for orchestrating fraud involving crypto asset securities which led to massive investor losses when the scheme unraveled.
  • Thodex: This was Turkey’s first major crypto exchange. In 2021, they suddenly halted trading, preventing users from withdrawing their funds. The CEO disappeared and fled Turkey for Albania. Users were locked out of their accounts and feared that their money was gone. His disappearance triggered a criminal investigation and an international manhunt.
  • FTX – This US/Bahamas, crypto exchange collapsed around 2022 on account of misuse of customer funds, accounting fraud among other charges and claims. As a result, there has been a range of court cases involving the founder, Sam Bankman-Fried and the exchange, even up to present day.
  • Three Arrows Capital (3AC): The founder of 3AC, Su Zhu was arrested in 2023 for failing to co-operate with the liquidators of his collapsed crypto hedge fund. He was imprisoned for 3 months and was released. Three Arrows Capital Ltd is in liquidation and there has been a slew of cases flowing from this collapse including in the British Virgin Islands. These cases continue into 2025 and some of them involve the collapsed FTX crypto exchange.
  • Pig Butchering Scam: A global scam that tricked hundreds of victims worldwide resulted in a $225 million seizure of cryptocurrency by the US Secret Service.

A few Court cases involving crypto

Additionally, here are a few court cases involving crypto:

Given these circumstances, it must be reiterated that while there may be the enticing promise of fast wealth through digital currency, there is a dark side to this space. Bad actors operate in the crypto sector (as well as in the traditional finance sector) and vigilance, due diligence and legal awareness must be exercised when operating in both sectors.

 

If this information resonates with you; or you need legal assistance navigating this area, feel free to reach out at info@tenorequelegalandconsulting.com. You can also explore these resources – Crypto Crime Prevention Tips for Investors, 2025 Cryptocurrency Investigation in T&T, Top 10 Biggest Crypto Frauds, 3AC Case Update, Latest on the Thodex case, The Trinidad & Tobago Securities and Exchange Commission and the Financial Intelligence Unit of Trinidad and Tobago for more information.