Why Your AML Policy is Useless Without On-Chain Forensics Expertise

Bridges like LayerZero, Axelar, and Wormhole are treated as simple transfers, not the critical laundering vector they are. Funds are atomically swapped and routed across chains in under 60 seconds, breaking the on-chain audit trail before any AML flag can be raised.

• Chain-Hopping: Assets move across 5+ chains to obscure origin.
• False Positives: Legitimate cross-chain activity drowns out signals.
• Jurisdictional Gaps: No single entity oversees the full transaction path.

On-chain forensics tools like Chainalysis and TRM Labs don't just track addresses; they cluster wallets by analyzing shared funding sources and behavior patterns across protocols like Tornado Cash, Railgun, and Aztec. This reveals the entity behind the obfuscation.

• Deposit Correlation: Linking multiple, small mixer deposits to a single funded wallet.
• Temporal Analysis: Identifying the bridge-to-mixer cycle time, often under 10 blocks.
• Gas Funding Source: Tracing the ETH for fees back to a central exchange withdrawal.

Focusing solely on mixers misses the preparatory bridge step. The modern laundering stack is a multi-hop intent: bridge via Across or Socket, swap via a DEX aggregator, then enter a privacy pool. AML that only flags mixer deposits is already two transactions behind.

• Intent-Based Routing: Services like UniswapX and CowSwap abstract the complexity, bundling steps.
• Liquidity Fragmentation: Funds are split across dozens of pools pre-mixer.
• Protocol Integration: Mixers are embedded as a liquidity source in DeFi routers.

Static address blacklists fail. Our methodology constructs dynamic proximity graphs mapping the flow of funds through bridges (Stargate, Celer) and into mixing environments. We score risk based on the velocity, volume, and vault diversity of the asset's path.

• Bridge Exit Monitoring: Flagging high-value withdrawals to unhosted wallets.
• Hop Velocity Scoring: Transactions with sub-30-second inter-chain hops are high-risk.
• Liquidity Sink Analysis: Identifying which DEX pools or lending markets are used as temporary holds.

Sanctioning mixer smart contract addresses is a performative gesture. Sophisticated actors use custom privacy pools, cross-chain asset swaps (e.g., ETH to AVAX to a privacy pool on a different chain), or decentralized bridge relayers that have no identifiable operator. Compliance must shift from address-based to pattern-based enforcement.

• Smart Contract Proliferation: 100+ forkable privacy pool contracts exist.
• Asset Swapping: Changing asset type pre-mixer to evade token-specific monitoring.
• Relayer Decentralization: No KYC'd entity to sanction for the bridge transaction.

The endgame isn't just flagging; it's making laundering economically non-viable. This involves partnering with front-end providers (wallets, DEXs) to impose delays or warnings on high-risk paths identified by our graph, and providing real-time risk APIs to CEXs for deposit screening.

• Pathway Surcharges: Proposing fee bumps for transactions following known laundering patterns.
• Front-End Integration: Wallet warnings for users about to interact with high-risk bridge/mixer combos.
• CEX Deposit Delays: Providing a risk score for incoming funds, enabling holds on high-velocity deposits.

Wallet screening against static lists like OFAC is a compliance checkbox, not a detection tool. It misses the entire laundering process that happens between the sanctioned source and the final deposit.

• False Sense of Security: You flag the entry/exit, but miss the $10B+ in cross-chain bridging and mixing.
• Zero Context: A wallet is just an address; you can't see its transaction graph, funding sources, or behavioral patterns.

You must map fund flows across protocols and chains to see the laundering path. This requires analyzing smart contract interactions, bridge hops (e.g., LayerZero, Wormhole), and DEX swaps.

• Proactive Detection: Identify high-risk patterns like rapid, circular trades or structured deposits before funds hit your KYC wall.
• Entity Resolution: Cluster addresses controlled by a single actor using funding patterns and behavioral heuristics, moving beyond single-address alerts.

Manual review doesn't scale. Your policy must be executable code that interfaces directly with Tornado Cash detection oracles, cross-chain message verifiers, and DeFi liquidity pool monitors.

• Dynamic Policy Engine: Automatically flag transactions based on exposure to sanctioned mixers, involvement in recent exploits, or interaction with high-risk protocols.
• Audit Trail: Generate immutable, on-chain attestations for every compliance decision, creating a defensible legal record.

Adversaries use privacy pools, cross-chain asset issuers (e.g., Stargate), and intent-based systems (e.g., UniswapX, CowSwap) to obscure trails. Your AML must understand the primitives, not just the players.

• Protocol Intelligence: Monitor for novel laundering techniques like liquidity provision to obscure trails or use of bridges with weak provenance tracking.
• Adaptive Thresholds: Adjust risk scores based on real-time network intelligence from firms like Chainalysis or TRM, not just static lists.