The Murky World of Cryptocurrency and Financial Crime
The rise of cryptocurrencies as decentralized digital assets is undeniably one of the most disruptive phenomena in the modern financial system.
Created to give users more control and reduce reliance on traditional financial institutions, digital currencies like Bitcoin and Ethereum have reshaped how value is exchanged online.
However, the same decentralization and pseudo-anonymity that provide freedom and security for legitimate users also create fertile ground for illicit activities, particularly money laundering, currency evasion, and terrorist financing.
As methods for moving and storing these assets become more sophisticated, traditional financial tracking tools face unprecedented technical and legal hurdles.
According to the Crypto Money Laundering Report 2024 by Chainalysis, approximately $22.2 billion in crypto assets were moved by addresses linked to illicit activities in 2023.
The report also highlights that of the $24.2 billion received by illicit addresses during the same period, about 61.5% was related to entities or jurisdictions under international sanctions.
Challenges Faced by Authorities
These figures illustrate the scale and complexity of the challenge law enforcement faces in identifying and recovering digital assets derived from crime.
Before diving into investigative dilemmas, it’s essential to understand the core concepts and structures underpinning the crypto universe.
Legally, Brazilian law does not recognize Bitcoin, Ethereum, or similar digital assets as currency in the strict sense.
According to Law No. 14.478/2022, which establishes the legal framework for cryptocurrencies in Brazil, these assets are classified as crypto assets because they are not issued by a sovereign monetary authority.
In other words, because they lack legal tender status and are not guaranteed by a national state, these instruments do not fit the legal definition of “currency” and, therefore, do not enjoy the normative protection afforded to the real or other fiat currencies.
This distinction is not merely terminological: it directly affects the regulatory, tax, and criminal treatment of these assets, as well as imposing limits and gaps on state supervision and control actions.
The starting point for understanding the logic of cryptocurrencies lies in the principle of peer-to-peer (P2P), which refers to direct communication between users, without the intermediation of central institutions such as banks or brokers.
In a P2P network, each participant can create and send transactions, while network nodes are responsible for validating them. This distributed architecture eliminates the trusted intermediary, one of the main innovations brought by Bitcoin and other cryptocurrencies.
The technical infrastructure that enables this system is the blockchain, or chain of blocks—a public, immutable, and shared digital ledger. All transactions are recorded in cryptographically linked blocks and validated by nodes, which operate in a distributed consensus model.
Depending on the network protocol, consensus mechanisms may vary between Proof of Work, Proof of Stake, or other models, but all aim to ensure the integrity and security of the system, preventing fraud such as double spending.
In the practical field of transactions, it is important to distinguish between hot wallets and cold wallets. Hot wallets are connected to the internet and, therefore, more accessible for quick operations, but also more vulnerable to cyberattacks.
Cold wallets remain offline, often stored on physical devices or even on paper, and are preferred by those seeking long-term security or wishing to make it difficult for investigative authorities to track assets.
Another fundamental concept is fiat currencies, a term that designates fiduciary currencies issued by governments, such as the real, the dollar, or the euro. The main difference between fiat currencies and cryptocurrencies lies in the absence of state backing and the high volatility of digital assets, as well as a profound distinction in control, custody, and supervision mechanisms.
Although digital cryptocurrency wallets are legally anonymous, from a technical point of view, it is essential to emphasize that anonymity in crypto transactions is only relative.
In practice, there is pseudo-anonymity: although all transactions are public and visible on the blockchain, wallet addresses are not necessarily linked to verified identities.
This characteristic makes it difficult, but not impossible, to identify individuals, especially with the use of advanced blockchain forensic analysis techniques, data crossing, address clustering, and behavioral pattern analysis.
Tracking Crypto Assets
Tracking crypto assets is based on the analysis of public records on the blockchain, which functions as a digital ledger containing the complete history of all transactions carried out on a given network.
From the identification of a suspicious address, investigators use blockchain forensic analysis tools, such as those offered by specialized companies, to map transaction flows, identify connections between addresses, and, through techniques such as clustering, behavioral heuristic analysis, and linking to VASPs that perform KYC, seek to attribute identity to wallet holders. These procedures, often complemented by information obtained through judicial subpoenas to exchanges, allow complex financial chains to be reconstructed and the trail of assets to be followed to their final destination.
New technologies are significantly increasing investigative difficulties in tracking crypto assets. The use of mixers, privacy-focused currencies—such as Monero—and cross-chain bridges, which allow assets to be moved between different blockchains, offers criminals additional means to fragment, obfuscate, and conceal illicit financial flows.
These tools hinder the application of traditional tracking methods, such as follow the money, and require new analytical capabilities on the part of the authorities. Added to this is jurisdictional fragmentation, since many exchanges operate from countries with low regulation and little or no international legal cooperation, which limits access to financial records and the effectiveness of precautionary measures, such as asset blocking.
Examples of these difficulties can be found in recent operations by the Brazilian Federal Police.
In addition to the aforementioned Operação Kryptos, which identified movements exceeding R$32 billion and resulted in the blocking of approximately R$3.2 billion in assets under the custody of the 3rd Federal Criminal Court of Rio de Janeiro, other large-scale investigations, such as Operação Egypto and Operação Colossus, also exposed the vulnerability of traditional mechanisms to combat money laundering in the face of the new reality of crypto assets.
In Operação Egypto, for example, the Superior Court of Justice (STJ) validated the seizure and blocking of crypto assets, formally recognizing their legal nature as assets subject to seizure in investigations for crimes against the national financial system. Operação Colossus, launched in 2024, revealed a scheme to move more than R$13 billion through shell companies and foreign exchanges, highlighting the increasing sophistication of criminal networks in the use of digital assets.
Internationally, the Financial Action Task Force (FATF), in its updated 2021 guidance for a risk-based approach to virtual assets and virtual asset service providers (VASPs), recommends the adoption of the so-called Travel Rule (guideline created by the FATF/GAFI that establishes requirements for sharing information between financial institutions and, more recently, between VASPs, with the aim of combating money laundering and terrorist financing) and the mandatory licensing of VASPs.
The guidelines require these providers to implement rigorous Know Your Customer (KYC) procedures, as well as effective mechanisms for monitoring and reporting suspicious transactions.
These measures aim to reduce the degree of pseudo-anonymity in transactions with crypto assets, as well as facilitate international legal cooperation in combating money laundering, terrorist financing, and other transnational financial crimes.
Within this context, Brazil has been gradually advancing in structuring its governance over crypto assets, especially after the enactment of Law No. 14.478/2022 and the edition of Decree No. 11.563/2023, which assigned the Central Bank the responsibility for supervising Virtual Asset Service Providers (VASPs).
Although there is still no formally established National Forensic Cryptoanalysis Unit, the topic has been the object of increasing attention in initiatives such as the National Strategy to Combat Corruption and Money Laundering (ENCCLA), which has already included crypto assets among the focuses of its actions to prevent and repress money laundering.
In the field of international cooperation, Interpol has established global and regional efforts to combat crimes with crypto assets—including working groups on darknet/cryptocurrencies, guidelines for digital forensic laboratories, specialized webinars, and technical-operational cooperation projects via its Innovation Center.
In addition, alignment with the international guidelines of the FATF/GAFI, especially with regard to the implementation of KYC requirements, transaction monitoring, and adoption of the Travel Rule, indicates a trend of strengthening Brazilian institutional capacities in the prevention and combat of financial crimes involving crypto assets.
As the use of cryptocurrencies becomes more widespread and economic crimes become more sophisticated, it is imperative that law enforcement authorities are technically equipped to navigate this ecosystem. More than a technological challenge, it is a true paradigm shift in the way financial flows are investigated, tracked, and understood in the 21st century.
Strengthening analytical capabilities, inter-institutional integration, and the adoption of regulations more aligned with international standards will be decisive factors in preserving the effectiveness of the State in combating financial crime. At the same time, closer ties with global initiatives, such as those led by the FATF and Interpol, should guide Brazil’s next steps in building a legal and operational framework capable of addressing emerging risks without stifling technological innovation.
The balance between public security and economic freedom will, therefore, be the great challenge that will mark the next decade in the field of criminal financial investigation.
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