Over $28 Billion in Black Money Flows Through Crypto Exchanges: The Compliance Crisis Deepens

A sweeping international investigation by The New York Times and 36 global news organizations has uncovered a staggering reality: the cryptocurrency industry, despite its push toward mainstream legitimacy, continues to serve as a major conduit for illicit capital. The findings reveal that at least $28 billion in documented black money from criminal enterprises has flowed into major crypto exchanges over the past two years—a damning indictment of compliance failures in an industry that promised regulatory reform.

The Scope of the Problem: Tracing Dark Capital

The investigation traces illicit funds originating from hackers, extortionists, thieves, and organized scam networks spanning from North Korea to Southeast Asia and North America. These criminal groups have systematically exploited cryptocurrency’s speed and perceived anonymity to move stolen funds through leading trading platforms.

The sources of this black money are diverse and alarming:

• Cybercrime operations: North Korean hacking groups have laundered hundreds of millions through exchange accounts
• Investment fraud rings: Elaborate “pig-butchering” scams have bilked victims of billions, with stolen funds ultimately deposited on major platforms
• Financial crime networks: Organizations like Cambodia’s Huione Group operate what experts describe as an “Amazon for criminals,” providing money laundering infrastructure

According to blockchain analytics, in 2024 alone, global crypto exchanges received at least $4 billion traced to scam-related activities. The Minnesota case exemplifies the pattern: a father lost $1.5 million to an investment scam; over $500,000 of that black money eventually appeared in exchange deposit accounts.

Exchange Compliance: Promises vs. Reality

Several major platforms have faced significant regulatory penalties. One of the world’s largest exchanges admitted to money laundering violations in 2023, paying a $4.3 billion settlement for processing transactions linked to terrorist organizations. Yet the flow of suspicious funds has continued unabated even after such public commitments to reform.

The Huione Group case illustrates the problem:

The Cambodian financial conglomerate was designated a criminal entity by the U.S. Treasury Department in May this year for operating as a “core hub” for cyber theft and investment scams. Yet during the two and a half months following this designation, the group’s crypto wallets transferred at least $77 million to one major exchange and $161 million to another—all after the official ban.

Similarly, within five months of a major platform settling a $504 million violation case with U.S. authorities for fund transfer law violations, that same exchange received over $220 million in deposits from Huione Group’s associated wallets. The pattern suggests either inadequate monitoring systems or insufficient response mechanisms.

The Hidden Problem: Money Mules and Fake Accounts

When law enforcement subpoenaed account information related to a crypto scam, transaction data revealed suspicious patterns. Two accounts linked to the case showed:

• One account: $7 million in transactions within months, registered to a woman photographed in front of a corrugated metal wall at a Chinese village address
• Another account: $2 million in nine-month transaction volume—over 1,000 times Myanmar’s average annual salary

Experts identified these as “money mule” accounts, where stolen identities had been exploited to create fake profiles. Such accounts, lacking basic legitimacy markers, apparently passed platform verification systems—a troubling indication of how superficial KYC (Know Your Customer) procedures have become.

The Cash-Out Infrastructure: Crypto Exchange Shops

An underreported aspect of the black money problem is the proliferation of brick-and-mortar crypto exchange shops throughout Asia, Eastern Europe, and the Middle East. These operations function as final conversion points where anonymous individuals exchange cryptocurrency for fiat currency with minimal documentation requirements.

Analysis reveals:

• Hong Kong exchange shops alone processed over $2.5 billion in transactions last year
• Many shops require no ID verification
• Three major exchanges collectively received $531 million from these shops in 2024
• One Dubai exchange point received over $2 million in crypto within a two-week period in September

These shops operate largely outside regulatory oversight, providing what experts call “unlimited laundering space” for criminal proceeds. A reporter’s test transaction in Kyiv demonstrated the ease of the process: $1,200 worth of cryptocurrency converted to bundled cash in minutes, with no receipt or transaction record.

Why the Problem Persists

John Griffin, a crypto researcher at a major American university, points out a fundamental incentive problem: “If criminals are cleared from the platform, exchanges lose a major source of revenue. Therefore, they actually have an incentive to allow such illegal activities to continue.”

This economic reality, combined with weak enforcement and the technical challenge of tracing funds through decentralized ledgers, creates a toxic environment where black money continues flowing despite regulatory settlements and public commitments.

Blockchain experts note that once dirty funds enter an exchange, they become difficult to trace further. Funds may be split, converted between different cryptocurrencies, and dispersed across wallets before law enforcement can act. The speed of these operations far exceeds regulators’ response capabilities.

The Regulatory Gap

Recent developments have further weakened enforcement capacity. The U.S. Department of Justice disbanded a specialized crypto crime unit, directing prosecutors to focus only on end users (terrorists and drug dealers) rather than holding the platforms themselves accountable for their role in laundering schemes.

This policy shift coincides with a wave of pardons for prominent crypto executives previously convicted of related violations—sending a mixed message about regulatory priorities.

What Needs to Change

The investigation makes clear that voluntary industry compliance has failed. Platforms must implement:

• Real-time blockchain monitoring with immediate transaction flagging
• Enhanced customer verification beyond basic KYC procedures
• Mandatory freezing of flagged accounts pending investigation
• Transparent reporting of compliance actions to regulators
• Accountability measures with teeth, including asset seizure for repeat violations

Until exchanges face serious consequences for facilitating black money flows—beyond settlements that often amount to modest fines relative to revenue—the infrastructure for laundering illicit capital will remain firmly embedded in crypto market infrastructure. The $28 billion figure is likely only the documented portion; the actual scale of criminal capital flowing through these channels may be substantially larger.