Global: EU Innovation Hub Highlights Challenges Posed by Crypto Mixers, Privacy Coins, and Layer 2 Solutions for Law Enforcement

The European Union’s Innovation Hub for Internal Security has cautioned law enforcement agencies about the complications posed by crypto platforms such as mixers, privacy coins, and layer-2 blockchains in tracing the origins of funds.

In a separate report, France’s Autorité des Marchés Financiers (AMF) reiterated that cryptocurrencies continue to pose a high risk for money laundering.

The EU’s Innovation Hub for Internal Security, a network supporting internal security organizations across the 27-nation bloc, emphasized in its report that tools like privacy coins, crypto mixers, and layer-2 platforms can significantly hinder law enforcement’s ability to trace funds.

This report, published on Monday, involved contributions from crime-fighting agencies including Europol and Eurojust, alongside the European Commission and other entities. It advised law enforcement agencies to prepare for the complexities these tools introduce into their investigations.

Crypto mixers, in particular, have come under scrutiny. Tornado Cash, a notable example, recently saw its developer Alexey Pertsev sentenced to over five years in prison by a Dutch court. Prosecutors successfully argued that Tornado Cash was designed for money laundering purposes. This platform allows crypto users to obscure their wallet addresses while exchanging tokens across various networks, including Ethereum, BNB Chain, Arbitrum, Avalanche, and Optimism.

The warnings from both the EU Innovation Hub and the AMF underscore the increasing challenges that advanced crypto technologies pose to regulatory and law enforcement efforts, highlighting the need for enhanced strategies and tools to address these issues.