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How blockchain data can be leveraged by law enforcement agencies

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Blockchain analytics tools are a valuable resource for law enforcement agencies in investigating and tracking cybercrime activities. These tools can be used for :

  • Real-time incident response, illicit actor attribution, and mapping criminal activities to known entities, using advanced clustering and visualisations to map out illicit actors' transactions.
  • Corroboration and co-relation to other data sources, strengthening seizures and asset recovery efforts, policy making and impact assessment, investigative capabilities, AML and KYC compliance, risk assessment and systemic monitoring, regulatory compliance, and regulators leveraging blockchain analytics. 
  • By leveraging these tools, law enforcement agencies can identify and track down cybercriminals who have used cryptocurrencies, making it easier to bring them to justice and contribute to the fight against financial crime.


2022 witnessed some of the biggest crypto hacks that resulted in a major meltdown of the decentralised finance ecosystem. The story is no different in 2023 as multiple ransomwares and hacks are causing great trouble to the investors whether institutional or retail. Amidst this, regulators and law enforcements have stepped up their efforts in order to make crypto a compliant, and safe space for everyone.

The law enforcement agencies are leveraging the inherent blockchain technology to be a step ahead of the perpetrators and track and trace the flow of funds. This blog goes into the depth of the importance of a collaborative approach between law enforcement agencies and blockchain data to solve crypto crime and crypto enabled crime.
Blockchain technology has shown promise in this area and is being explored by many as a potential solution to the problem of money laundering. The technology offers a new and innovative approach to AML, which can overcome the challenges faced by compliance teams and improve the overall efficiency of the AML process.

The Potential of Blockchain Analytics in Law Enforcement

Blockchain technology and cryptocurrencies have opened up new opportunities for economic growth and development. However, the pseudo-anonymous nature of crypto transactions also appeals to cybercriminals exploiting it for money laundering, terrorism financing, and other illegal activities. Law enforcement agencies are now turning to blockchain analytics solutions to unlock the power of blockchain data for investigations, compliance, and policymaking.

Blockchain analysis platforms use advanced statistical modelling, AI, and data science techniques to de-anonymize blockchain activity and provide actionable insights. By piecing together multiple data points from the public blockchain, transactions can be attributed to known entities. This gives regulators and LEA visibility into the following key areas:

Real-Time Incident Response

One of the foremost challenges in investigating crypto-related crimes is that blockchain transactions happen in real-time, often crossing multiple jurisdictions within minutes. This high velocity demands equally agile monitoring and response capabilities.

With real-time tracking and alerts on suspicious transactions, blockchain analytics enables rapid incident response. The ability to trace funds mid-transaction instead of after the fact is a gamechanger for freezing assets before they disappear. Some real-world examples include:

  • Tracking ransomware payments to identify perpetrators or recover funds before assets are cashed out.
  • Flagging transactions to/from darknet markets and high-risk exchanges.
  • Tracing mixers and tumblers to unmask transaction trails.

Blockchain forensics empowers law enforcement with concrete, actionable intelligence to respond swiftly to crimes-in-progress.

Illicit Actor Attribution

Blockchain Technology for aml compliance
Attributing blockchain activity to real-world entities is the holy grail of blockchain investigations. Blockchain analytics uses advanced de-anonymization techniques to reliably map crypto wallet addresses to associated entities.
By analysing transaction patterns, relationships between wallets, timing of transactions, and other clues, clusters of related wallets can be tied back to a common actor. This identity attribution enables mapping the full scope of an entity’s on-chain activities.

For example, an individual’s various personal, business, and darknet wallets can be linked together to build a comprehensive picture of all associated transactions and counterparties. This can unveil connections to scams, ransomware, illicit markets, money laundering, and more that may otherwise go undetected. Robust attribution also aids international cooperation and information sharing between agencies, helping connect the dots across jurisdictions.

Transaction Clustering and Entity Mapping

Advanced analytics techniques can identify clusters of related wallets controlled by a common entity. Transaction graph visualisation then illustrates the relationships between wallets and clusters.

This enables intuitive exploration of transaction flows between identified entities. Investigators can visualise transaction trails to pinpoint activity of interest. Anomalous transaction patterns also become evident through transaction clustering, aiding detection of money laundering typologies and other suspicious activity.

Mapping known clusters further reveals connections to unknown wallets that likely belong to the same entity. Examining transactional relationships around a seed cluster enables expanding investigations to identify additional wallets associated with an illicit actor. This “cluster propagation” can unravel the full network of wallets controlled by a criminal organisation.

Corroboration from Open-Source Intelligence

Blockchain Technoloy for AML Transaction Monitoring

Blockchain analytics offers the most comprehensive view when combined with intelligence from other sources like OSINT. Gathering corroborating evidence from the open web helps confirm attribution and connect on-chain activities to real-world entities.

Some examples of OSINT data include:

  • Identifying cryptocurrency addresses referenced in forums or social media profiles.
  • Reviewing cryptocurrency exchange account information leaked on the dark web.
  • Matching dates of transactions with dates mentioned in related news articles or publications.

Bringing together on-chain and off-chain intelligence paints a more complete picture of entities under investigation. It also strengthens the evidentiary base for prosecution.

Strengthening Seizures and Asset Recovery

Blockchain Technology
A CNBC report found that seizures of cryptocurrency by law enforcement ballooned to $1.2 billion in crypto assets, an increase by 150%. However, agencies still struggle with tracing cryptocurrency that passes through mixers and offshore exchanges.
This is the gap that blockchain analytics aims to close. Granular transaction monitoring and attribution enable tracking assets as they move between wallets and exchanges. This expands recovery capabilities beyond what’s possible by subpoenaing exchanges alone.

With blockchain forensics, law enforcement can:

  • Identify exchange accounts receiving proceeds of crime to request account freezing.
  • Issue subpoenas to exchanges armed with specific wallet addresses and transaction details.
  • Trace funds moved to derivative platforms like DeFi protocols.
  • Monitor transactions in real-time to facilitate seizures before assets disappear.
  • Follow transfers into privacy coins and pitch blockchain analysis providers to trace further.
  • Uncover additional wallets associated with seized assets to broaden recovery efforts.

Thorough tracing of cryptocurrency flows is invaluable for recovering criminally-derived assets. It also paves the way for forfeitures and financial penalties.

Policy Making and Impact Assessment

Beyond investigations, blockchain data offers valuable intelligence for policy initiatives around cryptocurrency. Analytics can identify vulnerabilities in existing frameworks and quantify risks. By analysing blockchain data, policymakers can gauge the effectiveness of existing regulations and make informed decisions about potential policy changes. The impact assessment allows them to understand the consequences of regulatory actions on the crypto market and its participants. For instance, analytics can quantify metrics like:

  • Changes in transaction volumes to/from regulated exchanges after introduction of licensing frameworks.
  • Fluctuations in transactions to high-risk jurisdictions following travel bans or advisories.
  • Shift in adoption of mixers and privacy coins in response to transparency requirements.
  • Percentage of licensed VASP transaction volume compared to unlicensed VASPs.

Data-driven feedback is invaluable for fine-tuning policies and regulations to close loopholes and maximise impact. In 2023, the European Union conducted a comprehensive impact assessment of its crypto-related regulations. The assessment relied heavily on blockchain analytics data to evaluate the impact of their policies on market dynamics, investor behaviour, and financial stability. This data-driven approach helps policymakers strike a balance between fostering innovation and safeguarding against potential risks.

Illuminating Industry-Wide Trends

An aggregated view across billions of transactions provides a macro perspective on cryptocurrency usage trends. Identifying overall shifts can inform policy priorities and allocation of regulatory resources. Some examples of industry-level metrics include:

  • Tracking growth in transaction volumes across jurisdictions.
  • Monitoring adoption of privacy-enhancing tools like mixers, tumblers.
  • Analysing trends in cross-border fund flows.
  • Identifying spikes in activity on high-risk exchanges.

Macro-level tracking provides crucial context for evaluating regulatory priorities and framing guidance.

Risk Management and Compliance

Blockchain data can help law enforcement agencies (LEAs) in risk management and compliance by providing accurate data and visualisations in real-time. Blockchain analytics tools can be used to improve domain awareness, identify and stop threat actors on blockchains, and spot and solve blockchain-based crimes proactively. For regulated entities like banks and VASPs, blockchain analytics is a powerful tool for risk management and compliance. Use cases include:

Risk Assessments

Blockchain based AML Solution
Blockchain analysis provides in-depth visibility into risks associated with crypto assets and exposures. Banks can better evaluate risks posed by serving VASPs or offering crypto products. For VASPs, analytics enhances understanding of risks within their client base and transactions.

Some risk assessment applications include:

  • Analysing customer profiles for connections to risky jurisdictions, entities, or illicit activity.
  • Quantifying exposure to sanctioned addresses or exchanges.
  • Identifying sources of incoming funds whether via exchanges, mixers, or mining.
  • Detecting irregular transactional patterns indicative of money laundering.
  • Assessing ransomware risk by monitoring transactions with known ransomware infrastructure.

Robust risk assessment is a prerequisite for appropriate risk-based customer due diligence. Ongoing monitoring should also align with the risk rating of customers and accounts.

AML Transaction Monitoring

Analytics automates identification of suspicious transactions and activity that warrant further review. This provides efficiencies over manual monitoring and minimises false positives. Red flags triggering alerts include:

  • Transactions linked to darknet markets or gambling sites.
  • Unusual transaction sizes or frequencies.
  • Transfers to/from high risk jurisdictions.
  • Transactions related to sanctioned wallet addresses.
  • Activity divergent from expected customer profile.

Effective monitoring requires blending blockchain analytics with internal AML systems and processes. Analytics enhances existing transaction monitoring programs to more reliably detect money laundering risks.

Regulatory Compliance

Regulators can leverage blockchain analytics tools to identify unauthorised VASPs, review licence applications, and enforce regulations. Blockchain analytical firms can assist government agencies and insolvency practitioners handle, store, realise, and monitor seized assets using blockchain data. These services help regulators ensure that financial institutions and cryptocurrencies are complying with regulations and that criminals are brought to justice.

Sanctions Screening

Firms can screen customers and transactions against databases of prohibited wallet addresses and virtual asset service providers connected to sanctioned persons or jurisdictions. Ongoing monitoring also detects incoming or outgoing transfers to sanctioned addresses.

Transaction Monitoring

LEAs can visually map out the flow of transactions among illicit actors, revealing hidden patterns and connections that might otherwise go unnoticed. These visual representations aid investigators in comprehending complex criminal networks, leading to better-targeted interventions. Blockchain forensic tools can be used to screen for crypto transaction risk, identify high-risk customers, improve SARs submissions, and block risky transactions.

Travel Rule Protocols

Blockchain data can help law enforcement agencies (LEAs) and regulators enforce Travel Rule protocols for Virtual Asset Service Providers (VASPs). The Travel Rule is a term used to refer to FATF Recommendation 16, which covers measures to combat money laundering and terrorism financing (ML/TF). It requires financial institutions engaged in VA transfers and crypto companies, collectively referred to as VASPs, to obtain "required and accurate originator information, and required beneficiary information" and share it with counterparty VASPs or financial institutions during or before the transaction.

National Risk Assessments

Analytics helps regulators gauge the scale of virtual asset use, associated risks, and existing regulatory coverage. This intelligence informs national risk assessments on cryptocurrency adoption. Metrics quantified through blockchain analysis include:

  • Crypto asset transaction volumes across jurisdictions.
  • Size of unregulated market and VASP coverage.
  • Adoption rates across user segments - geographic, demographic etc.
  • Percentage of VASP transactions compared to non-VASP peer-to-peer transactions.
  • Use of mixers, privacy coins and other anonymity enhancing tools.
  • Crypto asset transaction volumes across jurisdictions.
  • Size of unregulated market and VASP coverage.
  • Adoption rates across user segments - geographic, demographic etc.
  • Percentage of VASP transactions compared to non-VASP peer-to-peer transactions.
  • Use of mixers, privacy coins and other anonymity enhancing tools.

Risk modelling based on hard blockchain data provides realistic assessments of crypto crime and illicit finance risks.

Identifying High-Risk Entities

Advanced analytics techniques can score entities based on the risk of associated wallets and transactions. This aids prioritising higher risk entities for compliance examinations. Risk indicators include:

  • Transactions associated with illicit sources of funds like darknet markets.
  • Frequent transfers to/from high risk jurisdictions.
  • Count of transactions with sanctioned wallet addresses.
  • Connections to clusters engaged in criminal activity.
  • Deviations from expected transaction profile.

Focusing oversight on the riskiest entities enables more effective utilisation of supervisory resources.

Post-License Monitoring

Analytics enables continuous monitoring of licensed exchanges and VASPs for changes in risk profile. Ongoing tracking helps assess effectiveness of implemented controls.

Identifying Unlicensed VASPs

One of the challenges for regulators is identifying unregistered VASPs in the absence of customer and KYC information. Analytics provides visibility by analysing transaction patterns to identify services executing transactions on behalf of others.

One of the challenges for regulators is identifying unregistered VASPs in the absence of customer and KYC information. Analytics provides visibility by analysing transaction patterns to identify services executing transactions on behalf of others.

Indicators of unlicensed VASP activity:

  • High transaction count and volumes exceeding individual user activity.
  • Cluster analysis showing wallets transacting on behalf of other unlinked wallets.
  • No evident ties to exchanges, merchants, other services explaining transaction profile.

Where exchanges are licensed, outliers exhibiting potential unregistered VASP activity can be flagged for investigation. Transaction graph visualisation also aids tracing flows from regulated entities to spot handoffs to unlicensed VASPs. This helps close loopholes in the licensing regime.

Supporting Enforcement Actions

Regulators need concrete evidence trails to take enforcement actions against non-compliant players. Blockchain analytics provides this audit trail by reconstructing detailed transaction histories including dates, counterparties, and fund flows. Analytics also supports investigations and sanctions against ransomware groups by identifying associated infrastructure for designations.

Supporting Regulatory Enforcement

Analytics provides a definitive transaction audit trail to establish potential violations by VASPs and support enforcement actions. Key applications include:

  • Tracing flows of funds from regulated exchanges to unlicensed VASPs or mixers.
  • Identifying prohibited transactions with wallets linked to sanctioned jurisdictions.
  • Reviewing flagged suspicious transaction alerts for sufficient justification.
  • Analysing customer wallet addresses for undisclosed associations with risky entities or activities.
  • Validating existence of effective transaction monitoring programs.
  • Quantifying percentage of customer transactions uncaptured in AML reports due to technical limitations.
  • Tracing flows of funds from regulated exchanges to unlicensed VASPs or mixers.
  • Identifying prohibited transactions with wallets linked to sanctioned jurisdictions.
  • Reviewing flagged suspicious transaction alerts for sufficient justification.
  • Analysing customer wallet addresses for undisclosed associations with risky entities or activities.
  • Validating existence of effective transaction monitoring programs.
  • Quantifying percentage of customer transactions uncaptured in AML reports due to technical limitations.

Essentially analytics can either validate or disprove claims made by regulated entities around transaction monitoring, risk management and compliance. Hard blockchain data makes it more difficult to hide gaps. By benchmarking regulated entities against the risk exposure patterns visible via blockchain analytics, regulators can take informed supervisory actions ranging from warnings to penalties or loss of licence. The immutability and transparency of blockchain transactions provides regulators an objective and accurate basis for evaluating adherence to anti-money laundering rules and policies. 

Licence Application Reviews

Blockchain analytics helps regulators conduct rigorous evaluations of new licence applications by VASPs such as exchanges. When reviewing applications, regulators can leverage analytics to:

  • Review submitted wallet addresses for any links to risky transactions, entities or jurisdictions. This provides insight into the quality of due diligence.
  • Analyse transaction history to evaluate effectiveness of existing AML procedures and controls. Transactions to high risk exchanges or mixers raise red flags.
  • Assess submitted exchange wallet addresses for outlier transactions that suggest unregistered VASP activity.
  • Verify source of funds for seed capital whether through mining, ICOs, private investors or other means.
  • Confirm no associations with sanctioned entities or prohibited jurisdictions.
  • Review founder and leadership wallet addresses for similar diligence.

ssentially, analytics augments due diligence validation during licensing with a deep transactional risk profile of the applicant business, founders and initial funding sources.

The UK’s FCA requires crypto asset addresses of beneficial owners be submitted with applications for AML registration. Analytics enables comprehensive vetting of these associated addresses.

Ongoing monitoring of licensees further ensures continued adherence to expected transaction profiles following award of registration/licence.


Blockchain technology and distributed ledger solutions provide extensive data on virtual currency transactions across public blockchains and permissioned blockchain networks. By leveraging Artificial intelligence and advanced analytics, blockchain applications can unlock valuable insights from transaction patterns, smart contracts, wallet address, and other on-chain data points, without exposing personal information or compromising personal data. 

Regulatory bodies and law enforcement agencies are increasingly turning to blockchain analytics platforms to aid forensic investigations into cryptocurrency crimes, illicit transactions, money laundering risks, and other anti-financial crime objectives. However, proper safeguards must be instituted to prevent abuse of blockchain data, ensure legitimacy of analytical models, and protect the broader blockchain ecosystem supporting innovation in the financial services sector. Responsible blockchain analytics reconciles the promises of greater transparency for regulators with the right to privacy for individuals.

As cryptocurrency oversight continues maturing, blockchain analytics is fast becoming indispensable. Blockchain forensics provides transparency into an otherwise opaque ecosystem, arming agencies with intelligence to combat crypto enabled crimes. For regulated businesses, analytics unlocks risk intelligence and standards for ensuring compliance. As adoption accelerates, blockchain analytics will likely emerge as a central pillar of crypto asset monitoring and regulation. 

Regulators too are increasingly recognizing the value of combining blockchain data with traditional supervisory tools for a more complete view of risk exposures. Mandating periodic blockchain analytics reporting as part of compliance further strengthens oversight of the ecosystem. Stay connected with us for the latest insights and updates on crypto compliance and regulation by subscribing to our newsletter and blogs.