Despite high-profile crackdowns on crypto mixers like Tornado Cash, centralized exchanges remain the go-to tool for criminals laundering illicit funds. A 2025 Chainalysis report reveals that these regulated platforms, not mixers, are the primary gateways for converting dirty crypto into clean cash. Dr. Jan Philipp Fritsche of Oak Security argues that regulators are misdirecting their focus, leaving the front door wide open for launderers while obsessing over smaller threats.
The Misplaced Focus on Mixers
For years, regulators have painted crypto mixers like Tornado Cash as the ultimate villains in the fight against money laundering. The conviction of Tornado Cash co-founder Roman Storm in 2025 was hailed as a victory, but it masks a larger truth. Mixers, while useful for obscuring on-chain transactions, are not the primary engines of crypto laundering. Instead, centralized exchanges—big, licensed platforms with global banking ties—are where criminals cash out. These exchanges offer the liquidity and fiat connections that mixers simply can’t match.
A 2025 Chainalysis report underscores this reality: the majority of illicit crypto funds in 2024 flowed through centralized exchanges. Criminals rely on these platforms to swap their crypto for dollars, euros, or yen, seamlessly integrating dirty money into the traditional financial system. Despite their polished compliance programs and “Know Your Customer” (KYC) checks, these exchanges often fail to stop sophisticated launderers, exposing a systemic flaw in the crypto ecosystem.
Why Exchanges Are Launderers’ Favorites
Centralized exchanges are attractive to criminals for the same reasons they appeal to legitimate traders: speed, liquidity, and global reach. Unlike mixers, which can only shuffle funds on-chain, exchanges serve as the critical bridge to fiat, allowing launderers to move money into real-world bank accounts. However, weak enforcement and under-resourced compliance teams create vulnerabilities. Many exchanges operate in permissive jurisdictions or rely on outdated systems that can’t keep up with evolving laundering tactics.
High-profile cases highlight the scale of the problem. In 2023, Binance settled with the U.S. Justice Department after processing transactions linked to ransomware and darknet markets. The exchange spent $213 million on compliance that year, yet gaps persisted. Similarly, BitMEX faced a $100 million fine for Bank Secrecy Act violations, with its founders later receiving pardons. These cases reveal a stark truth: exchanges are not just complicit—they’re the linchpin of most laundering schemes.
The KYC Illusion
KYC rules are often touted as the crypto industry’s shield against crime, but they’re far from bulletproof. Weak verification processes, such as accepting low-quality ID documents or relying on easily fooled automated systems, allow criminals to slip through. Sophisticated launderers use mules, straw accounts, or shell companies to bypass initial checks, exploiting the fact that KYC is designed to vet individuals, not detect complex laundering patterns across multiple accounts.
The structural flaws are even more glaring. By the time illicit funds reach an exchange’s compliance radar, they’ve often been funneled through layers of intermediaries, appearing clean. This reactive approach to compliance—coupled with underfunded teams and lax enforcement—means that even well-meaning exchanges struggle to stop determined criminals. Regulators must rethink KYC, moving beyond box-ticking to real-time, cross-platform monitoring.
Hardening the System
To curb money laundering, regulators and exchanges must shift from symbolic fixes to structural reforms. Compliance teams need more resources to match the scale of the platforms they oversee. Closing jurisdictional loopholes that allow exchanges to operate with minimal oversight is critical, as is holding executives accountable for systemic failures. Real-time detection systems that track laundering patterns across accounts and platforms could make a significant dent in illicit activity.
Sharing actionable intelligence between exchanges and law enforcement is another key step. Criminals exploit the fragmented nature of the crypto industry, hopping between platforms to evade detection. Until regulators prioritize these measures over high-profile but less impactful crackdowns on mixers, centralized exchanges will remain the weak link in the fight against crypto money laundering.