TLDR
- Over half of illicit crypto in 2024 was routed through centralized exchanges.
- Binance and BitMEX faced major penalties for money laundering failures.
- Mixers like Tornado Cash handled less laundering volume than exchanges.
- Weak KYC systems let criminals bypass checks on regulated platforms.
Law enforcement and regulators continue to focus on crypto mixers, but the real threat may lie in centralized exchanges. These platforms, often viewed as compliant and regulated, remain the main channel for converting illicit digital assets into fiat. New findings and past enforcement cases show that most dirty crypto still flows through major trading platforms—not privacy mixers like Tornado Cash.
Centralized Exchanges at the Core of Laundering Operations
A recent 2025 Chainalysis report confirms that most illicit cryptocurrency passed through centralized exchanges in 2024. Criminal groups rely on these platforms to convert crypto into real-world money. The exchanges offer high liquidity and fiat connections, making them the final stop in laundering chains.
Despite strict regulations, exchanges often lack strong internal controls. Many operate in jurisdictions with weak oversight, and some have limited compliance resources. In the past, platforms such as Binance and BitMEX have faced major enforcement actions. The U.S. Department of Justice’s 2023 settlement with Binance revealed that the platform processed funds linked to darknet markets and ransomware operations.
BitMEX, another well-known exchange, was fined $100 million for Bank Secrecy Act violations. Its executives also faced criminal charges. These examples show how regulated platforms continue to process large volumes of criminal transactions, often undetected for years.
Mixers Receive Attention, but Exchanges Handle the Volume
While privacy mixers like Tornado Cash attract headlines, they do not handle the same volume of funds. Tornado Cash co-founder Roman Storm was convicted in 2025 for operating an unlicensed money-transmitting business. However, mixers are limited in function—they can hide the source of funds, but they do not enable conversion into fiat.
Criminals prefer centralized exchanges because they offer speed, reach, and liquidity. They serve as both on-ramps and off-ramps for illicit funds. These exchanges are often used after mixers or other obfuscation steps have been completed. At this stage, funds appear clean and are ready for withdrawal into the traditional banking system.
According to Dr. Jan Philipp Fritsche, managing director at Oak Security, “Focusing regulatory energy on mixers while letting exchanges remain the primary fiat gateways for illicit funds is like locking the windows while leaving the front door wide open.”
Weak KYC Systems and Compliance Gaps Enable Abuse
Know Your Customer (KYC) rules are supposed to stop money laundering at entry points. Yet, many exchanges use weak verification methods. Some accept low-quality identity documents or use automated tools that are easily fooled. Others outsource compliance to third-party firms with minimal oversight.
Criminals often bypass KYC using fake IDs, stolen data, or straw accounts. More complex schemes involve layering funds across multiple accounts before reaching an exchange. This makes tracking hard and reduces the chance of detection.
KYC systems focus on single accounts, but laundering happens across networks. Without tools that detect patterns across users and jurisdictions, exchanges remain vulnerable. By the time suspicious activity is flagged, the funds have often already been withdrawn.
Strengthening Compliance and Coordination Is Key
Experts say exchanges must invest more in compliance and risk monitoring. Large trading platforms process billions daily, yet many have under-resourced compliance teams. Regulators need to close legal loopholes that allow exchanges to serve risky markets without full supervision.
Better coordination between exchanges and law enforcement is also needed. Sharing intelligence across platforms can help detect repeat offenders and stop them from moving between services.
Platforms that fail to prevent laundering must face consequences. This includes holding executives accountable when systems break down. Without stronger internal controls and regulatory pressure, exchanges will continue to serve as a gateway for illicit finance.
