Cryptocurrency as a Sanctions Evasion Tool: Implications for Global Financial Infrastructure and Investment Risk

The rise of cryptocurrency as a tool for sanctions evasion has introduced profound geopolitical and regulatory risks to global financial infrastructure. Over the past three years, state-sponsored actors have increasingly weaponized digital assets to circumvent international financial controls, leveraging the pseudonymity and cross-border nature of crypto networks. This shift has not only challenged the efficacy of traditional sanctions regimes but also exposed vulnerabilities in the regulatory frameworks governing emerging financial technologies.

State-Sponsored Actors and the Industrialization of Crypto Crime

North Korea has emerged as a leading actor in large-scale cryptocurrency theft, with its cybercriminal networks exploiting vulnerabilities in centralized exchanges (CEX) and custodial service providers. A case in point is the February 2025 ByBit hack, where North Korean actors stole $1.5 billion in Ethereum tokens-a theft representing 69% of all funds stolen from crypto services in 2025. These stolen assets were laundered through a network of intermediaries, including over-the-counter (OTC) brokers and underground banks in China, a process dubbed the "Chinese Laundromat".

Beyond North Korea, Russia and Iran have also weaponized crypto to evade sanctions. Russia's introduction of the ruble-backed A7A5 token in 2025 enabled it to process over $93.3 billion in transactions, bypassing global banking systems. Similarly, Iranian proxy networks facilitated over $2 billion in illicit transactions, including money laundering and illicit oil sales. These developments underscore how crypto is evolving from a tool for cybercrime into a strategic asset for state actors to undermine international financial order.

Regulatory Responses and the Struggle for Control

Regulatory bodies have responded with intensified enforcement actions and updated standards. The U.S. Department of Justice (DOJ) and Office of Foreign Assets Control (OFAC) have targeted crypto exchanges facilitating illicit transactions. For instance, the DOJ sanctioned Garantex and its rebranded entity Grinex for laundering funds linked to ransomware and sanctions evasion. Similarly, Binance faced a $4 billion settlement for anti-money laundering (AML) violations and sanctions breaches, highlighting systemic risks posed by platforms operating in regulatory gray areas.

On the international stage, the Financial Action Task Force (FATF) updated Recommendation 15 to mandate licensing for Virtual Asset Service Providers (VASPs) and enforce enhanced due diligence for cross-border transactions. Meanwhile, the U.S. Securities and Exchange Commission (SEC) has issued no-action letters to foster innovation while ensuring compliance with securities laws. These efforts reflect a delicate balancing act between promoting crypto innovation and mitigating risks to financial stability.

Investment Risks and Systemic Vulnerabilities

The growing use of crypto for sanctions evasion poses significant investment risks. Stablecoins, in particular, have become the dominant vehicle for illicit transactions, accounting for 84% of all illicit crypto activity in 2025. Their stability and ease of cross-border transfer make them ideal for state-sponsored actors seeking to evade scrutiny. For example, Chainalysis reported that stablecoins represented 63% of illicit transaction volumes in 2025, driven by their role in international trade and sanctions evasion.

Investors face heightened exposure to platforms operating in jurisdictions with weak regulatory frameworks. The collapse of KuCoin's AML protocols and Binance's enforcement actions illustrate how inadequate compliance measures can lead to catastrophic financial and reputational losses. Furthermore, the professionalization of crypto crime-exemplified by on-chain services enabling high-risk actors to launder funds-has created a shadow financial infrastructure that threatens to destabilize traditional systems.

The Path Forward: Global Coordination and Regulatory Clarity

Addressing these risks requires cross-jurisdictional coordination and real-time information sharing between regulators and law enforcement. The Global Crypto Policy Review & Outlook 2025/26 emphasizes that jurisdictions with robust frameworks, such as the U.S. and EU, have spurred institutional adoption of digital assets, while weaker regimes remain vulnerable to exploitation. For investors, this underscores the importance of due diligence in selecting partners and platforms, prioritizing those with transparent compliance protocols and adherence to international standards.

As the crypto landscape evolves, the line between innovation and illicit finance will continue to blur. The challenge for policymakers and investors alike is to foster innovation without compromising the integrity of global financial infrastructure-a task that demands vigilance, adaptability, and unprecedented international cooperation.