In its 2025 National Risk Assessment (NRA) report, Luxembourg classified virtual asset service providers (VASPs), commonly referred to as cryptocurrency enterprises, as high-risk entities for money laundering. This determination has drawn widespread attention from the cryptocurrency industry and the field of financial regulation.
The financial regulatory authority of Luxembourg pointed out in its report that the crypto industry has many characteristics that make it a high-risk area for money laundering activities. First of all, the huge trading volume of the cryptocurrency market provides an opportunity for criminals to take advantage. With the global popularity of cryptocurrencies, the daily transaction volume amounts to hundreds of millions. Such a large-scale capital flow, in the absence of effective supervision, can easily be used to cover up the sources and destinations of illegal funds. For instance, some funds obtained from illegal transactions can be mixed into normal cryptocurrency transactions. Through complex trading operations, their sources become difficult to trace.
Secondly, the extensive customer coverage of cryptocurrency enterprises is also one of the risk factors. The clients of these enterprises come from all corners of the world. There are differences in regulatory standards and law enforcement efforts among different countries and regions, which poses significant challenges for cryptocurrency enterprises when conducting customer identity verification and transaction monitoring. Some lawbreakers may take advantage of this regulatory disparity to open accounts in areas with weak supervision and then transfer illegal funds to other regions through cryptocurrency transactions, thereby evading regulation.
Furthermore, the unique distribution channels and international operational characteristics of cryptocurrencies have also exacerbated the risk of financial crimes. Cryptocurrency transactions can be conducted through decentralized networks without the need for traditional financial institutions as intermediaries, which makes the transaction process more covert.
At the same time, cryptocurrency enterprises often have operation points or conduct business in multiple countries and regions, with frequent cross-border transactions. Regulatory coordination among different jurisdictions is rather difficult, creating more space for money laundered to evade regulation. For instance, criminals can take advantage of loopholes in the regulatory policies on cryptocurrencies in different countries to convert illegal funds into cryptocurrencies in one country and then cash them out in another through cross-border transactions. The entire process can be completed in a short period of time and is difficult to track.
In recent years, there have been multiple money laundering cases related to cryptocurrencies worldwide. In November 2023, the US Department of Justice filed charges against Binance for money laundering, operating as an unregistered currency transfer business, and violating sanctions. Binance eventually agreed to pay a fine of 4.3 billion US dollars. The company’s CEO, Changpeng Zhao (CZ), resigned and pleaded guilty to money laundering. This case has shocked the entire cryptocurrency field, highlighting the huge loopholes existing in the anti-money laundering of cryptocurrency trading platforms. In addition, there are some hackers who attack cryptocurrency exchanges or wallets, steal a large amount of crypto assets, and then use tools such as coin mixers to carry out money laundering operations, legalizing the illegal gains.
Opinions within the industry vary regarding Luxembourg’s move to list cryptocurrency enterprises as high-risk entities for money laundering. Some cryptocurrency enterprises have stated that although they understand the regulatory authorities’ concerns about money laundering risks, this classification may pose certain obstacles to the innovative development of the industry. The cryptocurrency industry has made remarkable progress in the application of blockchain technology and financial innovation in recent years. Excessive strict regulation may dampen the industry’s innovative vitality.
However, there are also many voices in support of Luxembourg’s approach, arguing that clearly defining the high-risk status of cryptocurrency enterprises will help regulatory authorities concentrate resources, enhance supervision over the industry, improve the overall compliance level of the industry, and protect the interests of investors and the stability of the financial system. From a global perspective, an increasing number of countries and regions have begun to pay attention to the money laundering risks in the cryptocurrency field and have strengthened regulatory measures. In its relevant report for 2022-2023, the UK pointed out that cryptocurrency enterprises are among the “most vulnerable” in financial crimes, especially money laundering activities. The European Union also plans to establish an anti-money laundering regulatory agency to supervise crypto companies.
As Luxembourg has classified cryptocurrency enterprises as high-risk entities for money laundering, it is highly likely that the country will strengthen the regulation of virtual asset service providers in the future, including stricter customer authentication requirements, transaction monitoring mechanisms, and higher compliance standards. This move will not only have a profound impact on Luxembourg’s own cryptocurrency enterprises, but also may provide a reference model for cryptocurrency regulation in other countries and regions, promoting the development of global cryptocurrency regulation towards a stricter and more standardized direction.
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