The explosive growth of blockchain ecosystems has brought new challenges for law enforcement agencies, compliance officers, and virtual asset service providers (VASP). As the number of blockchains and cross-chain platforms, commonly known as bridges, continues to grow, so too does the complexity of tracing illicit financial activity across chains. Criminals are increasingly using cross-chain tactics to hide illicit funds, making blockchain analytics tools that lack comprehensive blockchain support inadequate for tracing investigations. As of 2024, over $7 billion worth of illicit crypto has been laundered using cross-chain methods, underscoring the urgent need for robust investigative tools. In this article, we’ll explore the challenges of cross-chain crime, why it matters, and how advanced cross-chain analytics tools like Merkle Science’s Tracker can simplify and assist crypto investigations.
The rise of cross-chain crime has introduced unique challenges for investigators that go beyond those faced in single-chain investigations. The decentralized and borderless nature of blockchain technology, combined with the ability to move funds freely across different networks, presents two significant challenges:
Cross-chain movement of funds significantly hampers visibility, particularly for law enforcement and compliance teams using legacy blockchain analytics tools. Traditional tools are designed to track transactions within a single blockchain, such as Bitcoin or Ethereum. However, when funds are moved across chains using decentralized cross-chain bridges or swap protocols, they effectively disappear from the purview of these tools.
For example, if illicit funds are moved from Ethereum to Binance Smart Chain via a bridge, investigators relying solely on Ethereum-based tracking tools will lose the trail, requiring blockchain explorers or other third-party tools to be able to locate and pick up the trail on the other side of the swap. Additionally, if the investigator cannot find an explorer or their platform does not cover the bridge or coin on the other side, the trail will be lost. This blind spot can create challenges in the investigation, allowing criminals to launder funds with greater ease and reducing the likelihood of asset recovery.
Furthermore, cross-chain crime complicates compliance efforts for virtual asset service providers. Without the ability to detect cross-chain flows, exchanges and custodial wallets risk unknowingly interacting with tainted assets, potentially exposing themselves to regulatory scrutiny and legal penalties.
This lack of visibility isn’t just a technical hurdle—it directly undermines trust in the broader financial system, making cross-chain analytics essential for safeguarding against such risks.
Without automated cross-chain tracing, investigators face the daunting task of manually piecing together transaction trails across multiple blockchains. This often involves using various block explorers—each with different interfaces and capabilities—to follow the flow of funds. Investigators must log transactions, convert timestamps, and manually aggregate data from different sources to reconstruct a coherent chain of events.
This manual process is not only error-prone but also extraordinarily time-consuming. In the world of crypto crime, time is of the essence — delays in tracing funds increase the chances that criminals will complete the laundering process by swapping assets multiple times, moving funds through privacy coins, or cashing out on obscure exchanges. Without timely and accurate information, investigators risk losing the trail altogether, making it almost impossible to trace the ultimate destination of stolen or illicit assets.
Moreover, manual cross-chain investigations require significant expertise. Investigators need to be familiar with multiple blockchain ecosystems, the operation of decentralized protocols, and the nuances of various token standards. The growing number of new blockchains and DeFi protocols only adds to this complexity, making cross-chain analytics an indispensable tool in modern crypto investigations.
Criminals exploit cross-chain infrastructure in various ways, employing advanced tactics to conceal the origin of illicit funds and bypass compliance controls. Below are some of the most common typologies of cross-chain crime, along with their significance and red flags for detection:
Decentralized exchanges (DEXs) are non-custodial platforms that allow users to trade crypto assets directly from their wallets without the need for intermediaries. Unlike centralized exchanges, DEXs often operate without KYC (Know Your Customer) or AML (Anti-Money Laundering) procedures, making them attractive to criminals seeking anonymity.
Cross-chain bridges facilitate the transfer of assets between different blockchains by locking the original asset on one chain and minting a corresponding asset on the target chain. While legitimate users leverage bridges to move assets across ecosystems for lower fees or better yields, criminals use them to evade detection.
Mixers, also known as tumblers, are protocols designed to enhance privacy by pooling users’ assets and redistributing them in random combinations. DeFi mixers, such as Tornado Cash, automate this process on-chain, making it difficult to trace the flow of funds.
Understanding the tactics criminals use to exploit cross-chain infrastructure is crucial for identifying red flags and initiating investigations. However, recognizing these patterns is only half the battle. Without the capability to follow funds seamlessly across chains, these insights risk becoming fragmented and ineffective. The need for robust, cross-chain analytics is no longer optional—it is the foundation of effective law enforcement action in today’s multi-chain ecosystem.
Traditional blockchain analytics platforms were designed to trace transactions within a single blockchain. However, criminals’ ability to seamlessly move funds across chains means that law enforcement agencies require next-generation tools capable of tracing cross-chain activity in real time.
Without robust cross-chain analytics, law enforcement faces significant hurdles:
Manually piecing together transaction histories across multiple blockchains can take days or even weeks. This delay is exacerbated by the rapid pace at which criminals can execute transactions. For every hour lost to manual tracing, the likelihood of recovering illicit funds diminishes. Criminals exploit this time gap by conducting rapid chain-hopping, swapping assets for privacy coins, or cashing out via obscure exchanges. The longer it takes to act, the more convoluted the trail becomes, potentially rendering it cold.
In the absence of cross-chain analytics, investigators risk missing critical transaction points where funds move across chains. This creates blind spots, particularly when criminals leverage emerging or less-documented blockchain networks. Funds that move to privacy-focused tokens or unregulated exchanges can vanish entirely from the investigative radar. The inability to act swiftly often means losing the opportunity to freeze assets or identify accomplices, leaving bad actors free to continue their operations.
Organizations lacking visibility into cross-chain transactions expose themselves to considerable risk. They may unknowingly process or hold assets tainted by association with illicit activities. This can lead to regulatory fines, legal action, or reputational damage. Furthermore, engaging with high-risk or sanctioned entities can jeopardize partnerships, erode customer trust, and invite scrutiny from regulators. Without the means to detect and assess cross-chain flows, financial institutions remain vulnerable to these cascading consequences.
Merkle Science’s Tracker tool addresses the cross-chain problem by offering a holistic approach to blockchain investigations. Unlike legacy tools that focus on single-chain analytics, Tracker is designed to trace transactions across multiple blockchains automatically, making it an indispensable tool for law enforcement and compliance teams.
Consider a real-world example: a ransomware group manages to extort funds in Ethereum. Instead of cashing out directly, they use a cross-chain bridge to move the funds to Binance Smart Chain, then swap them for a privacy coin using a DEX. With traditional tools, law enforcement would need to manually track each step using separate block explorers for Ethereum and Binance Smart Chain, a process prone to errors and delays.
With Tracker, the entire process is streamlined. Investigators can trace the movement across chains in one unified interface, identify the DEX used, and contact the relevant exchanges before the funds are fully laundered. This not only speeds up the investigation but also increases the likelihood of recovering the stolen assets.
As the crypto ecosystem continues to evolve in this new year, so too will the tactics used by criminals. Cross-chain analytics has become a necessity for any organization looking to stay ahead of the curve in crypto compliance and investigations. Merkle Science takes the impact of cross-chain technology on investigations seriously, which is why we are continuously improving the number of bridges we cover, making us the provider of choice for cross-chain swaps.
For law enforcement agencies, adopting cross-chain analytics solutions is critical. It ensures they can keep pace with criminals, protect the financial ecosystem, and uphold trust in the growing world of decentralized finance. Tools like Merkle Science’s Tracker are leading the charge in equipping law enforcement with the capabilities they need to combat the next generation of crypto crime.
To see how Merkle Science’s Tracker can enhance your investigations and help your organization tackle cross-chain crime, schedule a demo today.
