This article is reprinted with permission from Mankun Blockchain Legal Services, authors: Zhang Qianwen, Jin Weilin, copyright belongs to the original authors.
In the current context of the global digital economy accelerating integration, the methods of cross-border payments are rapidly transitioning from traditional bank card systems to blockchain networks. Nowadays, more and more merchants are beginning to accept cryptocurrencies as a means of payment, ranging from NFT artworks and metaverse real estate to cross-border e-commerce and freelance services.
This shift not only significantly enhances payment efficiency and expands transaction boundaries but also brings about dual effects: it pushes cross-border acquiring to the forefront of financial innovation while providing new hiding spaces for illegal activities such as money laundering. In the face of this trend, how should Web3 cross-border traders effectively identify and avoid money laundering risks in their business? This article will conduct a systematic analysis around this issue.
To understand the new challenges faced by Web3 cross-border acquiring in the field of anti-money laundering, it is first necessary to clarify the fundamental differences between its underlying operational logic and traditional models.
As shown in the figure below, the traditional Web2 acquiring process is still closely centered around centralized financial institutions such as card organizations, acquiring banks, and clearing banks, forming what is called an "account-based" system. In contrast, this process has been completely overturned in the Web3 world:
In the traditional Web2 system, cross-border payments are built around identity: all transactions must rely on trusted intermediaries such as banks and payment institutions to record and settle in their private ledgers, thus forming a closed system.
In comparison, Web3 has constructed an open payment system. Here, the payment application is not just an account but is generated through technology as an "anonymous digital address." When making a payment, there is no need to go through banks or payment platforms for deductions and settlements; users can complete transactions directly on a peer-to-peer basis. This mechanism relies on algorithms and networks rather than the credit of a centralized institution.
The transition from Web2's "account-based" system to Web3's "decentralized settlement + address-based" system is not just a technological upgrade but a fundamental shift in the underlying financial paradigm.
The payment structure of Web3 makes cross-border payments faster and lowers the threshold, breaking the limitations of countries and traditional banks. However, it is precisely this openness and anonymity that has upgraded the money laundering risk from "offline hiding" to "on-chain invisibility." Under the cover of anonymous addresses and smart contracts, dirty money can be infinitely split and mixed, merging into a vast data stream like droplets of water.
In Web3 cross-border payments, money laundering activities exhibit a high degree of technical sophistication and concealment. The following summarizes several typical money laundering schemes:
Scheme 1: Using anonymized mixing to launder money
Money launderers use "mixers" to blend illegal funds with other transactions, thereby cutting off the source and hiding their tracks. Subsequently, these "cleaned" funds can be used to purchase physical goods in cross-border payments or exchanged for fiat currency, completing the legalization of illegal funds. The purpose of mixing is to sever on-chain tracking, obfuscate transaction paths, and make it difficult for the acquiring party to trace the source of funds.
Core of the scheme: Use "mixing" to achieve anonymity, making funds disappear without a trace.
Scheme 2: On-chain money laundering through DeFi protocols
Money launderers leverage the openness and composability of decentralized finance protocols to achieve rapid and complex fund transfers. Through cross-chain, exchanges, and interest-earning operations, they complicate the fund paths to a degree that is difficult for humans to parse, causing tracking efforts to become lost in the vast on-chain data.
Typical operations include:
Cross-chain bridge conversion—transferring illicit funds across different blockchain networks via cross-chain bridges, increasing tracking difficulty;
Asset swapping—exchanging one asset (e.g., stolen ETH) for another asset (e.g., USDT) on decentralized exchanges;
Staking and lending—depositing illicit funds into DeFi staking pools to earn interest or using them as collateral to borrow other clean assets for payment.
Core of the scheme: Create complex fund transfer paths to increase tracking difficulty.
Scheme 3: Confusing money laundering through false trade
Money launderers conduct fake transactions through cross-border e-commerce websites they control, using dirty money to purchase their own goods. After the website exchanges the received cryptocurrency for fiat currency, the dirty money becomes legitimate sales revenue.
Core of the scheme: Use false cross-border trade as a cover for money laundering activities.
Scheme 4: High-priced money laundering through the NFT market
Money launderers stage a "one-man show" to launder money: first, they create an NFT and then buy it back at an exorbitant price using another wallet. This money simply shifts from one pocket to the other, transforming into "clean money" from "selling art," which can then be used normally.
Core of the scheme: Use the lack of standard pricing for NFTs to fabricate a non-existent commercial transaction through self-buying and self-selling, thus laundering the money.
The anti-money laundering efforts in Web3 cross-border acquiring are no longer a simple compliance issue but a systematic challenge involving technology, law, operations, and international cooperation. The fundamental contradiction lies in the fact that a decentralized financial new system has already formed, but the traditional regulatory logic has not kept pace, leading to a structural regulatory gap.
- Technical level: Identification blind spots on transparent ledgers
The transparency of blockchain is far from sufficient for anti-money laundering. We can see transactions, but we cannot identify "who is trading" and "why they are trading." This fundamental contradiction manifests in four major technical dilemmas:
Dilemma 1: No owner of the protocol, accountability falls through
DeFi protocols like Uniswap lack clear accountability, leading to no one being held responsible when risks arise, making regulation difficult.
Dilemma 2: Contract black box, intentions hard to discern
Money launderers can bundle multiple steps into a single smart contract call, making it difficult for risk control systems to parse the underlying business logic.
Dilemma 3: Cross-chain interaction, tracking breaks
When funds are transferred between different blockchains, their original risk identity cannot be maintained, causing the tracking chain to break.
Dilemma 4: Privacy tools, polluting data
Technologies like mixers can completely disrupt the flow of funds, rendering traditional risk control models that rely on path analysis completely ineffective.
- Legal and regulatory level: Responsibility and boundaries are blurred
If the technical dilemma is "visible but unrecognizable," then the challenges in law and regulation are "knowing where the problem lies but unable to find the responsible party."
The core of traditional regulation is clear territoriality and responsible entities, but the decentralized structure of Web3 is precisely the opposite. When problems arise on "ownerless protocols" like Uniswap, regulatory agencies face a fundamental dilemma: among the many roles such as development teams, governance participants, and users, there is often no clear party to hold accountable.
The Tornado Cash case further provokes thought: does releasing a neutral open-source code equate to assisting in money laundering?
The cross-border nature of Web3 acquiring leads to blurred regulatory boundaries. A transaction may face multiple jurisdictions or may go unregulated due to enforcement difficulties, forcing practitioners to survive in the gap between compliance overload and regulatory vacuum.
- Operational and risk control level: Challenges of second-level decision-making and irreversible settlement
The "transaction equals settlement" characteristic of Web3 compresses risk control to a minimum. The acquiring party must complete risk assessments in a very short time, caught in the dilemma of "misjudging legitimate users" and "allowing illegal funds to pass."
Moreover, the industry generally relies on outdated black-box risk control models, lacking a unified definition of "suspicious transactions," leading to inconsistent risk assessment standards. Once an error occurs, funds will be completely lost due to the inability to reverse transactions.
- International cooperation level: Disjunction of global transactions and fragmented regulation
Web3 acquiring can be completed in minutes, while judicial cooperation and regulatory responses can take months. This has led to institutions utilizing offshore lenient licenses to undertake high-risk businesses at minimal cost, creating a vicious cycle of bad money driving out good.
At the same time, the openness of on-chain data and the privacy protection regulations of off-chain identity information present fundamental conflicts, further exacerbating regulatory lag.
Anti-money laundering in Web3 cross-border acquiring is a tightly interlinked systemic problem. It involves multiple levels such as technology, law, risk control, and global cooperation, mainly including:
Decentralization of technology: leading to the inability to find clear legal responsibility;
Vague legal provisions: making it difficult for traditional risk control measures to intervene in advance;
Inconsistent regulatory standards across countries: ultimately leading to a significant weakening of enforcement efforts.
These levels can trigger a domino effect, so acquiring service providers can no longer focus solely on one aspect but must build a systematic compliance framework, establishing a solid bridge between the "decentralized" technological world and "centralized" regulatory requirements.
"Anti-money laundering" has never been about restricting us with rules but is an opportunity to rebuild the trust system. When money can flow easily across borders, when code contracts replace banks, and when algorithms automatically execute transactions, the ultimate competition between enterprises is no longer just about who is faster, but about who is more trustworthy.
For companies providing payment services, investing effort in building a complete compliance system is not only a necessary safety measure but also a way to build their own advantages. It allows you to proactively demonstrate to regulatory authorities, partners, users, and investors that your business is compliant and transparent. In this way, what was once seen as a cost of compliance transforms into valuable trust capital.
Web3 cross-border payments are undergoing a critical transformation: from patching up problems after they arise to proactive planning and establishing systems.
Related: Senator Tim Scott pushes for a vote on cryptocurrency market legislation in December
Original article: “Web3 Cross-Border Payments: Money Laundering Risks Behind Efficiency Gains”
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