Crypto Sanctions Evasion Is More Complicated Than It Looks

One of the largest illegal gambling networks in the world, according to a recent Reuters report, has been sending millions of dollars worth of crypto through an Iranian sanctions evasion operation.

This Dubai-based network is a major customer of Shelbit, an unlicensed cryptocurrency exchange considered a hub of the Iranian money-moving operation, through which sanctioned entities like the Central Bank of Iran access global crypto markets, per the report.

Iran’s central bank has been sanctioned by the US since 2019 for supporting the IRGC, the Quds Force, and Hezbollah.

The latest report suggests that Shelbit has processed at least $4 billion since May 2024 and moved multi-million-dollar amounts to several prominent exchanges, including Binance.

Binance, however, said that Shelbit has never held an account on its platform and that linked transactions weren’t considered high risk. Users associated with Shelbit were investigated, and relevant accounts were frozen and reported to law enforcement, Binance said in a statement.

“This is by far the biggest Iranian illegal gambling network ever discovered and one of the biggest in the world.”

– John Wojcik, Senior Analyst at TRM Labs

Just a few months ago, US Treasury Secretary Scott Bessent announced that the US had seized about $1 billion worth of crypto tied to Iran.

Crypto’s use in sanctions evasion isn’t limited to Iran, though. Russia and North Korea have also been involved in these activities. Data from Chainalysis shows that illicit addresses received at least $154 billion last year, a 162% increase year-over-year (YoY).

This surge was mainly driven by a 694% increase in value received by sanctioned entities, totaling $104 billion for the year.

The Crypto Crime report also noted that Iranian crypto activity is dominated by the state. Meanwhile, North Korea is utilizing over $2 billion it stole in crypto, in its most successful year ever, to “fund their weapons of mass destruction (WMD) program.”

For Russian businesses, the ruble-backed A7A5 stablecoin is providing a key bridge to access global markets despite sanctions. The stablecoin has processed $93.3 billion in less than a year.

So, the same cryptocurrencies offering people in Argentina, Venezuela, Nigeria, and Lebanon protection from hyperinflation and failing domestic banking systems are also enabling the evasion of sanctions. This has resulted in enforcement actions like the US sanctioning crypto mixers, stricter implementation of the EU’s Markets in Crypto-Assets (MiCA) regime, and increased scrutiny of exchanges and stablecoin issuers.

All this shows growing concern around crypto’s ability to undermine traditional sanctions. But it’s not that simple. While cryptocurrencies have undoubtedly created new ways to move and conceal value, they have also generated transparent blockchain records and expanded the role of regulated intermediaries that increasingly cooperate with authorities.

Rather than rendering sanctions ineffective, crypto is reshaping how sanctions evasion occurs and where enforcement efforts are most likely to succeed.

How Crypto Is Changing Sanctions Evasion

Bitcoin (BTC ) was launched in the aftermath of the 2008 financial crisis. The trillion-dollar market cap cryptocurrency was created to offer the public a peer-to-peer electronic cash system that allows anyone to transact directly without relying on governments or financial institutions.

The idea was to eliminate the need for trusted third parties and ensure that no single authority, like a central bank or corporation, controls the system, thus protecting people’s funds from being frozen or seized by these centralized powers. Meanwhile, pseudonymous wallet addresses make it harder, but not impossible, to identify counterparties.

These very same features that allow individuals to achieve financial freedom and sovereignty also facilitate sanctions evasion.

Sanctioned actors use these characteristics to steal crypto, generate new revenue streams through crypto mining, make cross-border transfers outside the traditional banking system, and launder money through mixers, decentralized protocols, or exchanges operating in permissive jurisdictions.

For instance, Russia and Iran have been using their cheap energy to build a lucrative domestic cryptocurrency mining industry. Then there is North Korea, which has stolen more than $6 billion worth of crypto since 2017.

In 2026 through April, North Korean hacking groups accounted for 76% of all crypto hack losses. Interestingly, just two attacks totaled over half a billion dollars: the Drift Protocol breach ($285 million) and the KelpDAO bridge exploit ($292 million), representing a mere 3% of the 2026 incident count but 76% of stolen value. TRM Labs stated in its report:

“That ratio — small number of attacks, outsized share of losses — has characterized North Korea’s approach across most years since 2017,”

These incidents demonstrate how sanctioned states can use cybertheft to acquire cryptocurrency outside the conventional financial system. Turning those stolen assets into usable resources, however, still requires laundering, conversion, and access to supporting infrastructure.

Crypto’s capabilities shouldn’t be mistaken for a replacement for traditional sanctions. This is evident from reports by crypto-native companies that analyze these activities. Because transactions on blockchains are recorded permanently, they allow companies and governments to track entire transaction flows once wallet addresses are identified.

Not to mention, crypto is highly volatile, has limited liquidity compared with global capital markets, and ultimately needs to interact with the traditional financial system to support large-scale economic activity.

What this shows is that crypto may complicate enforcement, but it does not render economic sanctions obsolete. Crypto’s decentralization, after all, applies to the ledger and not to the sanctioned actors, which moves the focus away from blockchains and toward the infrastructure that connects them to the conventional economy.

This includes exchanges, stablecoin issuers, custodians, blockchain analytics providers, and fiat on/off-ramps, which determine whether crypto can be converted into usable economic resources.

Each of these offers the opportunity to enforce sanctions through Know Your Customer (KYC), Anti-Money Laundering (AML), transaction monitoring, and sanctions screening. It is only when compliance is weak that these platforms are used as channels to move funds.

We have already seen the EU’s new authority to blacklist unlicensed crypto platforms and the US Treasury’s freezing of hundreds of millions of dollars at exchanges.

Such actions show that governments can effectively implement sanctions by controlling the intermediaries that give crypto usability in the real world, without needing to regulate decentralized blockchain networks themselves.

However, it’s crucial to note that in sanctioned or economically unstable countries, crypto is also used by the general population to preserve savings and move personal wealth during periods of financial instability or capital controls. This has been well documented in Venezuela as well as in Russia following the invasion of Ukraine.

So, it’s not only sanctioned individuals, criminal organizations, or state-linked entities that are involved in targeted evasion through cyber theft, ransomware, illicit mining, and laundering operations; crypto also offers ordinary people a way to protect their assets.

There is yet another level of activity: large-scale circumvention capable of materially supporting a national economy.

While there’s evidence for the first two, a recent systematic review of the academic and policy literature found that the scale and feasibility of the third remain uncertain. Market liquidity constraints, price volatility, and the continued need to convert digital assets into fiat currency raise doubts that cryptocurrencies can currently replace access to the conventional international financial system on a national scale.

The Gaps in Our Understanding

A 2026 study titled “Exploring the role of cryptocurrencies in sanctions evasion: a systematic review¹” has taken a comprehensive look at the academic and policy literature examining cryptocurrencies and sanctions evasion, trying to identify where the honest gaps are.

Instead of adding another case study, the authors systematically collected and organized the existing literature. For this, they treated both peer-reviewed research and vetted “grey” literature, which includes think tank reports, industry analyses like Chainalysis, and UN and Treasury findings, as part of one consolidated evidence base.

Importantly, they made no assumptions as to whether crypto defeats or has little effect on sanctions. The researchers simply organized existing evidence, evaluated competing claims, and identified where current knowledge remains incomplete.

The study starts by pointing out a “growing concern within both academic and policy circles that the emergence and widespread adoption of cryptocurrencies could undermine the effectiveness of financial regulations,” which has arisen from crypto’s “decentralized architecture and inherent pseudonymity, which make them particularly appealing for illicit activities.”

While the concealment of identifiable information makes it more difficult to detect transactions linked to sanctioned individuals and entities, crypto transactions occurring outside the oversight of traditional financial channels complicate sanctions enforcement.

Per the study, crypto’s pseudonymity and decentralization offer real opportunities for evasion, and North Korea, Russia, and Iran have all used the technology in documented ways.

But as it points out, the practical effects of these features are not absolute. Pseudonymity is within regulatory reach, and despite the decentralized architecture, much of crypto activity routes through intermediaries that can be supervised.

So, “scope remains for mitigating evasion,” the study stated, adding that “the fragmented regulatory landscape makes this a complex undertaking.”

The main contribution of the study is in demonstrating that much of the debate relies on a limited number of high-profile case studies while leaving fundamental questions about scale, mechanisms, and regulatory effectiveness unresolved.

The study identifies three gaps:

• Scale: No reliable estimate exists of how large crypto-enabled evasion is relative to traditional methods. “The overall scale of cryptocurrency-enabled sanctions evasion remains unclear, both in absolute terms and relative to other evasion practices,” noted the researchers.
• Pathways: How frequently different evasion routes through crypto are used remains poorly documented, and the specific regulatory and market conditions that make them viable are poorly understood.
• Novelty: It remains genuinely contested whether crypto represents something structurally new or is simply old sanctions-busting tricks, such as regulatory arbitrage, third-country middlemen, and layered transactions, running on new technical rails.

Despite the novelty of crypto’s design features, the authors noted that several of these mechanisms are simply “old problems in a new guise.”

“The literature often treats cryptocurrencies as disruptive because of their design features, yet it remains contested whether this amounts to a structural break with earlier evasion techniques or a functional analogue that differs mainly in form rather than logic,” argued the authors.

If the underlying dynamics are mostly familiar, then the existing playbook of intermediary regulation, AML/KYC requirements, and multilateral coordination should work reasonably well once applied consistently.

But if crypto does represent something structurally different, then more novel regulatory tools may be needed, the study stated.

The researchers then argue that the central challenge is no longer simply understanding blockchain technology; rather, it’s identifying the regulatory and market conditions that determine whether intermediaries become enforcement chokepoints or avenues for circumvention.

“Cryptocurrencies are not legal tender and do not reliably function as a medium of exchange or store of value, primarily due to their low adoption and high volatility,” noted the authors. “As a result, actors seeking to evade sanctions are typically dependent on liquidating their assets, as they are exposed to a significant degree of risk by preserving their wealth in the form of cryptocurrencies.”

The literature review also linked empirical gaps to bigger questions about sovereignty and power. It asks whether states can still control cross-border financial flows in a de-territorialized system, or whether that control is quietly moving toward the private intermediaries and technical infrastructure that actually move the money. The study stated:

“Beyond empirical uncertainties, resolving these gaps bears directly on whether states retain the capacity to assert authority, steer the key points through which sanctions are enforced, and leverage their structural position within the international financial system to exert pressure.”

By shifting attention from decentralized networks toward exchanges, service providers, and regulatory coordination, the research offers a more realistic framework for evaluating sanctions effectiveness.

For policymakers, this suggests that future sanctions enforcement will depend increasingly on coordinated supervision of crypto infrastructure rather than attempts to regulate decentralized protocols directly.

But if governments’ mitigation efforts prove insufficient, the paper warns that crypto has the potential to redistribute power away from states and toward networks and technical systems. This would carry both operational and normative implications, given crypto’s autonomy-first approach, making attempts to reassert control harder.

“Ultimately, whether cryptocurrencies remain a marginal complication in sanctions enforcement or become a catalyst for broader transformations in sovereignty, governance and power depends on how these dynamics evolve,” concluded the study.

If regulated intermediaries are becoming the primary enforcement layer of the crypto economy, investors should pay particular attention to platforms with the scale, technology, and regulatory infrastructure needed to operate under increasingly demanding compliance standards.

Coinbase Global, Inc. (NASDAQ: COIN)

The $40.5 billion market cap Coinbase is the largest US crypto exchange, now catering to users in more than 100 jurisdictions across six continents. This helped the company reach $5.2 trillion in total trading volume in 2025. Its crypto trading volume market share, meanwhile, jumped to a record 10.3% in Q2 2026.

As per the regulated exchange, its goal is to update the financial system by expanding crypto’s utility and adoption, which Coinbase believes “have the ability to increase economic freedom and opportunity around the world.”

With the paper identifying regulated cryptocurrency exchanges as critical enforcement chokepoints, Coinbase offers an attractive investment option given its compliance features, including sanctions screening, identity verification, transaction monitoring, and cooperation with regulators.

To adhere to global and local regulations, the exchange has an identity verification (IDV) platform that uses a multi-layered approach. It utilizes a mix of machine-learning (ML) powered and human review for a seamless experience. While ML-based document checks help detect subtle forgeries and synthetically created images, human reviewers address the gaps that ML-trained models may miss due to technical limitations.

The platform has also created a Financial Crimes Compliance program that incorporates all the controls expected from a traditional financial institution. This includes its proprietary tool called Interdiction Solution, built specifically to combat sanctions violations and help fund recovery through interdiction, which allows Coinbase to screen crypto transactions in real time, freeze assets, and transfer them to an internal holding account.

Thanks to these solutions, centralized platforms like Coinbase help regulators restore oversight at the points where cryptocurrency enters or exits the conventional financial system.

But it’s not that the exchange benefits from sanctions evasion; rather, Coinbase’s business model depends on demonstrating robust compliance with global financial regulations. The inevitable tightening of global regulations and enforcement can actually strengthen the competitive position of large, well-capitalized, regulated platforms like Coinbase, given their ability to absorb increasingly expensive compliance requirements thanks to established compliance teams, sophisticated transaction-monitoring systems, and longstanding relationships with regulators and banking partners.

This may be an expensive undertaking for smaller or weakly supervised exchanges, and as regulations tighten, the industry could consolidate around large, compliant platforms.

However, this also creates exposure for Coinbase in the form of penalties, reputational damage, or restrictions on particular services and jurisdictions if it fails to comply. The more central an exchange becomes to the legitimate crypto economy, the higher the stakes when enforcement failures occur.

Coinbase has been securing regulatory wins recently. Most recently, it won the dismissal of a lawsuit in which customers accused it of illegally selling securities without registering as an exchange or broker-dealer. A much bigger win came last year when the SEC dropped its lawsuit against the exchange, which had accused it of operating as an unregistered securities exchange and offering unregistered securities through its staking program.

These wins came as crypto gains regulatory clarity, especially in the US, where the industry is now awaiting the passing of the CLARITY Act.

The bill will create a federal regulatory framework for crypto in the country, and Coinbase CEO Brian Armstrong has been pushing for the Act, calling it not “only a win for crypto users,” but also “for the future of America as a global leader for finance, innovation, and national security.”

Conclusion

With their decentralization, permissionlessness, pseudonymity, and censorship resistance, cryptocurrencies offer a powerful alternative to traditional financial systems, using which individuals can preserve their wealth.

These same characteristics, however, help evade sanctions, but they do not fundamentally displace the power of economic sanctions. While facilitating targeted evasion by sanctioned individuals and state-linked actors, crypto’s ability to sustain large-scale national sanctions circumvention remains unproven. 

Here, the decisive factor becomes the governance of crypto infrastructure. This could favour well-capitalized exchanges, stablecoin issuers, custodians, and other intermediaries capable of absorbing rising compliance costs, while placing growing pressure on platforms operating beyond effective regulatory oversight.

References

1. Koidis, O. A., Giumelli, F. & Gstrein, O. J. Exploring the role of cryptocurrencies in sanctions evasion: a systematic review. Journal of Financial Crime (2026). https://doi.org/10.1108/JFC-05-2025-0130