Mixers, Miners, and Evolving Expectations

In this week’s newsletter, we are continuing our look at regulatory developments from the UK. This time, turning to perhaps the most rapidly evolving sector of all.

Enter crypto.

It’s an open secret that cryptoassets have become a key tool in the sanctions evasion playbook. But just because the infrastructure is decentralized doesn’t mean its participants are off the regulator’s radar.

The Office of Financial Sanctions Implementation (OFSI) recently published a Threat Assessment report advising on the latest around cryptoassets, and here’s what stood out to me:

• Underreporting is likely. Despite increasing public focus on crypto and sanctions, crypto-related SARs remain low. OFSI believes this doesn’t reflect the true level of exposure.

• Layering is common. Most cases involve designated persons using wallet obfuscation, cross-asset swaps (e.g., Bitcoin to Tether), and intermediaries to conceal transaction trails.

• Mixers and privacy tools are core enablers. Services like Tornado Cash have been cited directly in cases where funds were traced back to sanctioned entities.

• Miners and validators aren't off the hook. The report flags that infrastructure providers may be exposed if they enable transaction processing for sanctioned actors, even unknowingly.

• New obligations may be coming. While crypto is currently covered under general UK sanctions reporting laws, the report hints at potential future guidance tailored to crypto-specific actors such as exchanges, custodians, and DeFi platforms.

The message from OFSI is familiar but firm: don’t wait for formal regulation to act. Know your customers, understand how your platforms are being used, and treat transaction anonymity as a potential risk, not a feature.

Source: OFSI Report

Thanks for reading.

Curious how this might affect your firm’s approach to crypto compliance? Let’s talk.

Alexey