New York Forces Banks to Hunt Crypto Crime with Blockchain Tools

New York regulators have mandated banks to integrate blockchain analytics into their compliance frameworks, a move aimed at modernizing oversight and combating illicit financial activities. In a directive issued by the New York State Department of Financial Services (NYDFS) on September 17, 2025, banking institutions—both state-chartered and foreign—were instructed to adopt blockchain monitoring tools to address the risks associated with virtual currency activities. This follows an increase in banks' exposure to digital assets and builds upon previous guidance issued to licensed cryptocurrency firms in 2022. Superintendent Adrienne Harris emphasized that as banks expand into virtual currency services, their compliance measures must evolve to incorporate new technologies for risk mitigation.

The guidance underscores the use of blockchain analytics to screen customer wallets, verify fund sources from virtual asset service providers, and monitor potential money laundering, sanctions evasion, or other illegal activities. It also advises banks to compare expected customer behaviors with actual transactions and assess risks tied to new crypto services or products. NYDFS highlighted that these examples are not exhaustive and stressed that banks must tailor their risk-management frameworks to their business models, regularly reassessing them as market conditions evolve.

This directive is part of a broader regulatory strategy to safeguard New York’s financial system, including the implementation of enhanced cybersecurity measures. As of November 1, 2025, banks and other covered entities must adhere to updated provisions of New York’s cybersecurity regulation, which mandate multi-factor authentication (MFA) for internal system access. These rules aim to reduce the risk of credential-based attacks and data breaches in the financial sector.

The adoption of blockchain analytics is being positioned as a critical tool for detecting and preventing illicit finance, particularly as the use of digital assets continues to grow. The role of these tools in uncovering criminal activity has become increasingly prominent. For instance, in March 2025, Chainalysis identified direct financial links between Mexican drug cartels and Chinese suppliers of fentanyl precursors through over $37.8 million in suspicious crypto transactions between 2018 and 2023. Similarly, in July 2025, Greece’s Anti-Money Laundering Authority conducted its first-ever cryptocurrency asset seizure in relation to the $1.5 billion Bybit exchange hack attributed to North Korea’s Lazarus Group, using Chainalysis Reactor tools to trace the stolen funds.

Private-sector efforts are also expanding oversight. Tether announced an investment in Crystal Intelligence, a blockchain analytics firm that supports regulators and law enforcement in identifying illicit transactions. This partnership builds on Tether's Scam Alert platform, launched earlier this year, which flags wallet addresses associated with fraud, hacks, and phishing schemes. Meanwhile, the U.S. Treasury has imposed sanctions on entities linked to criminal activities. In July 2025, it froze a TRON wallet connected to ransomware operators and darknet vendors after Chainalysis tied it to illicit activity.

As the regulatory landscape continues to evolve, the combination of blockchain analytics and cybersecurity measures reflects NYDFS’s broader mission to modernize oversight of both traditional and digital financial services. The directive signals a shift toward a more proactive approach in safeguarding the integrity of the financial system, particularly as banks increasingly engage with virtual assets through customer activity or internal operations. With the rise in crypto-related fraud, as evidenced by the FBI’s 2024 report of $9.3 billion in losses and CertiK’s data showing $2.2 billion in losses in the first half of 2025, the need for robust compliance measures is clear.