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Crypto mixers, privacy coins and complicated layer 2 tracking for law enforcement, says EU Innovation Hub for Homeland Security
Privacy Coins, mixers AND level 2 platforms can make it difficult for law enforcement to trace funds, according to a report from the European Union’s Innovation Hub for Internal Security, a network of laboratories that support internal security organizations in the 27-nation bloc.
The report, published on Monday by crime-fighting agencies including Europol and Eurojust along with the European Commission and others, tells law enforcement agencies that you have to be prepared for the meeting these types of tools in their investigations.
Crypto mixers have been in the spotlight recently. Tornado Cash developer Alexey Pertsev was ordered to spend more more than 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 trade tokens by hiding wallet addresses on the Ethereum, BNB Chain, Arbitrum, Avalanche, and Optimism networks.
“Mixer Tornado.cash also used zero-knowledge proofs to allow users to withdraw funds from the mixer without revealing what their original deposit was,” the report states. “This significantly complicates tracing the origins of the (illicit) cryptocurrency for law enforcement. “
Privacy coins like Monero build privacy into their protocols, hiding the identities of the sender, recipient, and even the sender money sent.
“Layer 2 solutions like the Lightning Network could also be subject to abuse by criminals,” the report reads. “This can be used, for example, to make mutual payments without making the times and amounts of these payments visible. Likewise, new wallet encryption schemes can also complicate legal access by law enforcement .”
Separately, France’s Autorité des Marchés Financiers (AMF) said cryptocurrencies remain at high risk of money laundering due to their popularity, cross-border nature and the anonymity that comes from platforms such as mixers. The securities regulator published its own report Monday.