A step-by-step walkthrough of how crypto is used to launder money, from dark web earnings or stolen funds all the way to a clean bank account.

Step-by-Step Crypto Money Laundering Example

Let's imagine someone just earned illicit funds, say, from a ransomware attack or a corrupt state contract. Here's how they can â'clean' it using modern crypto tools:

Step 1: Convert to Crypto

• The launderer uses an unregulated or offshore crypto exchange (e.g., in Russia, UAE, Seychelles) to convert cash or bank transfers into Bitcoin (BTC) or Tether (USDT).

• No ID checks required.

Goal: Enter the crypto system anonymously.

Step 2: Obfuscation Using Mixers/Tumblers

• The BTC is sent through a mixing service (like Tornado Cash, ChipMixer, or Blender.io).

• These services pool thousands of transactions and then reissue the coins, breaking transaction trails.

It,s like swapping your marked bills with someone else's, and walking away clean.

Step 3: Transfer to Privacy Coins

• The freshly mixed coins are now exchanged for Monero (XMR), a privacy coin with untraceable transactions.

• This is done through peer-to-peer (P2P) platforms or decentralized exchanges like Uniswap or Bisq.

This step adds an extra cloak of invisibility.

Step 4: Purchase of NFTs or Digital Assets

• The launderer buys a worthless NFT they created themselves, or one owned by a partner.

• The price is inflated, e.g., $200 becomes $200,000, and paid with Monero or ETH.

• The NFT is then sold to a legitimate buyer or moved to another wallet as an 'art investment'.

This converts illegal money into an 'asset' with market value.

Step 5: Layering through DeFi Platforms

• Funds move through multiple DeFi platforms (e.g., Curve, Aave, SushiSwap).
• Smart contracts split and reassemble funds, making it impossible to follow.
• Launderers might lend to themselves using the crypto as collateral and withdraw clean funds.

Layered enough times, the crypto looks like it was earned through legit DeFi activity.

Step 6: Exit Strategy, Cashing Out

• Finally, they move the crypto to:
  • A crypto ATM (common in Dubai, Turkey, etc.)
  • A friendly crypto exchange in a lax-jurisdiction
  • A shell company bank account that 'sells' consulting services

Funds are withdrawn as:

• Fiat currency (USD, EUR)
• Luxury goods
• Offshore bank deposits

Now the money is 'clean' and almost impossible to trace to the original crime.

Real Case: Lazarus Group (North Korea)

• Stole $620M in ETH from the Ronin Network in 2022 (linked to Axie Infinity).

• Immediately funneled it through:

  • Tornado Cash

  • Multiple wallet layers

  • Exchanges in Asia

• U.S. Treasury later traced part of it to weapons development funding.