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Crypto mixers, privacy coins and layer 2 complicate tracking for law enforcement agencies, says EU Innovation Center for Homeland Security
Privacy Coins, mixers It is layer 2 platforms could make it difficult for law enforcement agencies to find funds, according to a report from the European Union’s Innovation Center for Homeland Security, a network of laboratories that supports homeland security organizations in the 27-nation bloc.
The report, published Monday by crime-fighting agencies including Europol and Eurojust, with the European Commission and others, told law enforcement agencies that you need to be prepared to face these types of tools in your investigations.
Crypto mixers have recently been in the spotlight. Tornado Cash developer Alexey Pertsev ordered to spend more five years in prison by a Dutch court after prosecutors successfully argued that the platform was created for money laundering. Tornado Cash allows cryptocurrency users to exchange tokens while hiding wallet addresses on the Ethereum, BNB Chain, Arbitrum, Avalanche, and Optimism networks.
“Mixer Tornado.cash has also used zero-knowledge proofs to allow users to withdraw funds from the mixer without revealing what their original deposit was,” the report said. “This significantly complicates tracing the origins of (illicit) cryptocurrency for law enforcement.”
Privacy coins like Monero build privacy into their protocols, hiding the identities of the sender, recipient, and even the money being sent.
“Layer 2 solutions like the Lightning Network can also be abused by criminals,” the report stated. “This can be used, for example, to make payments to each other without making the times and amounts of those payments visible. Likewise, new crypto wallet schemes could also complicate law enforcement access.”
Separately, France’s Autorité des Marchés Financiers (AMF) said crypto remains a high money laundering risk due to its popularity, cross-border nature and anonymity that comes with platforms like mixers. The securities regulator published its own report on Monday.