In today’s world, economic sanctions have become the silent weapon of international diplomacy, a means for powerful nations to attack adversaries without firing a shot. Yet, while sanctions aim to enforce accountability, they often cripple ordinary trade and finance in targeted economies. That vacuum has pushed many entrepreneurs and sanctioned nations to turn toward a new, borderless alternative: cryptocurrency.
It’s no news that there are now other ways of which money can be moved aside from the banks: it can travel instantly on public blockchains, which due to the fact that they are not regulated, give bad actors ways to move funds secretly, often beyond government control.
For years now, countries as well as certain individuals and companies, have been using this method to dodge international sanctions that are placed. What happened is, the majority of the time, the governments rely on traditional banking systems to track and restrict the money movement made from these entities, but digital assets operate outside those systems.
This loophole allows them to continue doing their business and crime activities. While banks require identification, crypto wallets don’t. Anyone can create multiple wallets anonymously and move funds through decentralized networks where no single authority can block transactions.
Over time, these entities have become more sophisticated that they turn to advanced blockchain like mixers or decentralized exchanges (DEXs) to hide the origin and destination of their funds. This adds another layer of secrecy to their crime and makes it more difficult for enforcement agencies to trace where the money is coming from or going to.
Real-world cases of sanction evasion
The case of North Korea’s notorious Lazarus Group remains one of the most notable hackers that use crypto to dodge sanctions. Over the years, this group has stolen billions of dollars’ worth of digital assets from crypto platforms and then laundered the funds through platforms like Tornado Cash, a blockchain “mixer” to make the transaction untraceable.
Tornado Cash was also sanctioned by the U.S government who claimed that it helped process total transactions of more than $7 billion, with a large part of that linked to stolen funds from North Korea. The group also uses Bitcoin mixers to shuffle stolen coins into smaller pieces, which makes it nearly impossible to trace their origins.
Another use case involved Russia, which had leaned on crypto, especially stablecoins to cushion the blow of Western financial restrictions following its invasion of Ukraine. When Russian banks were cut off from SWIFT, the global financial messaging system, businesses and individuals turned to local exchanges and peer-to-peer markets to conduct cross-border trades.
Meanwhile, while all this is going on, the country also explored alternative payments systems as a backup thanks to blockchain. After facing restrictions from SWIFT and other international networks, the country decided to turn to stablecoins, a perfect tool for international payments that does not rely on the Western banks
Earlier this year, Promsvyazbank, a state-linked company based in Russia, partnered with fintech firm A7 to launch A7A5, a stablecoin pegged to the ruble and registered in Kyrgyzstan.
Within months, A7A5’s transaction volume skyrocketed to $41.2 billion in July, according to blockchain analytics firm Elliptic, with more than $1 billion changing hands daily. Its market capitalization doubled from $521 million to $1 billion in just two weeks. TRM Labs later reported that the stablecoin was used to facilitate dual-use goods, including materials usable for both military and civilian purposes—between China and Russia.
In short, despite the restrictions, Russian companies were able to carry on their international deals using these stablecoins, including Tether (USDT) and USDC, which does not require a bank or the government.
How cybercriminals moved their stolen funds
To these entities, it’s all about being untraceable. One popular way of using this involves privacy coins like Monero (XMR) and Zcash (ZEC), which are designed to hide transaction details such as the sender, the receiver, and also the amount. They are different from major tokens like Bitcoin (BTC) or Ethereum (ETH), which have public ledgers that are visible to anyone. This coin uses advanced encryption to protect users’ identities.
Because of this, coins like Monero have become common on darknet marketplaces. Exchanges such as Binance and OKX have delisted the token, which pushes users to decentralized swaps and instant services that bypass KYC checks.
Moreover, TRM’s research and other academic work have since examined Monero’s traceability, finding limited heuristics that can sometimes help investigators but showing the coin remains difficult to trace in many cases.
U.S. crackdown on crypto sanction evasion
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash in August 2022, arguing that it was used to launder more than $455 million stolen by North Korea’s Lazarus Group. This funds was stolen from the Ronin Network, the Harmony Bridge attack, and the Nomad bridge exploit.
At the time, officials said the platform “repeatedly failed to impose effective controls to stop illicit activity,” which allows sanctioned actors to conceal stolen funds. Under Executive Order 13694, the Treasury froze Tornado Cash’s U.S.-based assets and prohibited all U.S. persons and companies from interacting with it.
Before the sanctions, Tornado Cash had already begun to feel global pressure. In April 2022, the platform integrated a compliance tool from blockchain analytics firm Chainalysis to block OFAC-sanctioned wallet addresses from using its decentralized application interface.
One of the project’s founders, Roman Semenov, clarified on X that the blocking applied only to the app’s front-end, not to the underlying smart contract. He said this was an attempt to “maintain financial privacy while taking care of global compliance.” Despite this, regulators considered the effort insufficient, and noted that criminals could still access the protocol directly on-chain.
This crackdown on Tornado Cash was a turning point for crypto privacy tools because it showed that mixers were not beyond reach of regulation.
Then, in late 2023, OFAC also went after Sinbad.io, another Bitcoin mixer accused of processing millions in illegal funds for North Korean hackers. The Federal Bureau of Investigation (FBI), together with the Dutch Financial Intelligence and Investigation Service, seized control of the platform as part of an international crackdown. According to the U.S. Department of the Treasury, processed millions in stolen crypto for the criminal group and helped hackers disguise funds from the $625 million Ronin Bridge and $100 million Horizon Bridge attacks.
Europe expands sanctions as Russia seeks alternatives
At the same time, across the Atlantic, Europe was advancing its own sanctions in response to Russia’s ongoing war in Ukraine. Earlier this week, the European Union approved its 19th package of sanctions targeting Moscow’s energy exports and logistics networks.
This included a ban on Russian liquefied natural gas (LNG) imports, along with restrictions on 117 ships from Russia’s “shadow fleet” that were used to avoid oil restrictions. Also, the EU added several banks and companies in Kazakhstan, Belarus, and China accused of helping Russia bypass earlier sanctions.
Slovakia had initially objected to the package but dropped its resistance after receiving assurances on energy security and industrial policy from the European Commission.
Tracking the money trail
Despite crypto’s reputation for anonymity, unlike bank’s ledger, the blockchain records are public, and this opens the door for new forms of investigation. Recently, firms like Chainalysis, TRM Labs, and Elliptic are reportedly working with governments and law enforcement agencies to trace illicit crypto flows across the globe.
They make use of blockchain analytics, which can help identify suspicious wallets and link to any known hacker groups or sanctioned individuals, and even follow the flow of funds after they were stolen on various platforms. Chainalysis, for instance, has managed to track back billions of dollars associated with crypto-trasactions involving North Korea, ransomware hackers, and blacklisted Russian exchanges.
Freedom vs. misuse
While the authorities are trying their best to stop the abuse of using cryptocurrency to bypass sanction, the debate over the balance between financial liberation and governance is escalating. For some that support digital assets, it provides an option to the government controlled banking system. However, others feel this same opportunity which makes it attractive, also makes it dangerous in the wrong hands.
Stablecoin issuers like Tether and Circle are constantly under pressure by regulators, who have asked these companies to freeze wallets linked to sanctioned entities. For instance, earlier this month, Tether freezed 13.4 million in USDT from 22 wallets on Ethereum and Tron Network that
were associated with illegal or illicit activities. This shows that even private stablecoin issuers are being drawn into this.
Still, the borderless nature of crypto makes it difficult to control completely. Every time a government shuts down one avenue, another opens in place of it.
