Crypto Crime, Presidential Pardons, and Systemic Failures: How Major Exchanges Continued to Profit Amid Illicit Activity

Despite legal actions and oversight, major crypto exchanges processed illicit funds. Systemic weaknesses, regulatory gaps, and persistent crime reveal deep vulnerabilities.

In October 2025, President Donald J. Trump issued a pardon for Changpeng “CZ” Zhao, founder of Binance. Zhao had pleaded guilty in November 2023 for not putting in basic anti money laundering protections. The White House framed the pardon as an ending to the so called “war on crypto.” Yet analysts and investigators caution that the problems underlying them remain.

Between November 2023 and July 2025, Binance was still processing transactions related to organized crime. Similar flows have been discovered at OKX, which pleaded guilty in February 2025 to violations of the illegal money transmitter law. These developments reveal systemic weaknesses in exchange compliance and regulation on an international level.

In spite of oversight requirements and court monitors, hundreds of millions of dollars continued flowing through exchange accounts linked to criminal networks. The continuing patterns raise serious questions as to whether the industry has improved its defences in any meaningful way.

Legal Battles and Exchange Compliance Failures

Binance’s legal woes began with a 2023 plea agreement, filed in November, and related to suspicions that the exchange was not properly monitoring transactions for signs of illicit activities and, as a result, were allowing money derived from terrorist and cybercriminal activities to enter their system. As part of the deal, Binance had agreed to keep robust records on Know Your Customer (KYC) and report suspicious behaviour.

In February 2025, OKX also pleaded guilty to its illegal money transmitter business in the United States. The firm agreed to have an independent compliance consultant. Yet according to blockchain analysis, OKX accounts have received no less than $226 million from Huione Group following a guilty plea from the latter.

Binance had received at least $408 million in tether (USDT) from Huione linked wallets between July 2024 and July 2025. This persisted even when the U.S. Treasury Department made Huione one of the main laundering concerns just in May 2025. Lawyers said any such designations typically put a hold on all transactions.

US anti money laundering expert, Ross Delston, said that firms should sever ties with flagged entities right away. Yet, in spite of the requirements, exchanges continued to process these flows without clear evidence of decisive action to stop them.

Criminal Exploitation of Crypto Infrastructure

Exchanges function similarly to banks in that they enable users to store money, transact and convert assets. Yet crypto accounts don’t have the federal insurance protections that the bank accounts do. Criminals take advantage of this environment because there is such a wide range of oversight from country to country.

An ICIJ investigation was able to trace tens of thousands of transactions linked to major criminal networks. These included hackers from North Korea through Russian laundering gangs and Chinese trafficking gangs. Binance, OKX, HTX, and Coinbase accounts were found among the many of these flows.

Wallets belonging to a Mexican Sinaloa cartel money launder were given over $700,000 cash through Binance. Most of these funds originally flowed from Coinbase, which shows that illicit funds were moving between major U.S. platforms. Money linked to Chinese trafficking operations flowed to accounts at OKX.

A Russian money laundering account, which was associated with the North Korea weapons financing program, was still active on HTX as late as August 2025. At the time, HTX’s owner, Justin Sun, also invested $75 million in another Trump family crypto venture, World Liberty Financial, where we can see entanglements between major players and the regulatory headlines.

These examples reveal the extent of criminal flows being embedded within exchange operations in spite of continued proclamations of compliance and cooperation.

Sophisticated Laundering Through Decentralized Systems

Criminals are beginning to rely on decentralized swapping services to obscure the source of funds prior to their arrival on exchanges. These swap protocols enable users to convert one asset for another without any identity checks which create a problem for traditional compliance systems.

In February 2025, hackers stole somewhere around $1.5 billion in cryptocurrency from the Dubai based exchange Bybit, which the US Treasury said was the largest crypto heist to date. Much of the stolen ether was transmitted over THORChain, a decentralized swap platform.

Blockchain analysts found that 5 Binance deposit addresses received over $900 million in ether related with this activity in ten days. Although there was no direct proof that Binance controlled these addresses, experts said the magnitude of the flows should have raised the alarm.

Jonathan Reiter, CEO of blockchain analytics firm ChainArgos, emphasized that compliance tools should identify such large deposits. “Even a basic screening tool would pick out this pattern of activity,” he said, pointing to a disparity between technology that exists and practices in the real world.

Binance retaliated by highlighting its investment in compliance infrastructure – such as having more than 1,280 employees working on security and anti-money laundering efforts. The company said that it is constantly monitoring for high-risk activity and works with the law enforcement.

THORChain said independent traders, not its swapping service, controlled the Binance deposit addresses. However, the episode showed how decentralized finance can still play an indirect role in laundering activity. Therefore, risks increase when DeFi platforms connect with centralized exchanges.

Victims of Crypto Crime

The human cost of these systemic shortcomings is high. In 2024, the Federal Bureau of Investigation (FBI) estimated that Americans lost $9.3 billion to cryptocurrency crimes – and that was a 67% increase from the previous year of 2023. These losses are detrimental to individuals and families, and often they have little chance of recovery.

One victim, 58-year-old Carrissa Weber, ended up losing more than $25,000 to a remote job scam that routed funds in cryptocurrency. Police reportedly told her that it is unlikely she will recover. Another victim, 68-year-old Asako Nishizaki lost over $74,000 to a romance scam and her home afterward.

A father lost over $1 million in a crypto investment scam in Minneapolis. Blockchain tracing showed that thieves routed some stolen funds through Binance and other exchanges. However, law enforcement took limited action to track those accounts. As a result, 67-year-old Paul DiLello lost $150,000 in retirement savings and suffered severe financial and emotional harm.

These victims said that the police and authorities did not have the tools, training or resources to trace and recover their funds. Many were told by local officers that there is little that could be done as the scammers were operating abroad or using anonymous wallets.

The inability of victims to get some form of recourse highlights key gaps in both industry and law enforcement response to crypto crime.

Compliance Struggles Within Exchanges

Former compliance staff at large exchanges reported feeling overwhelmed and a lack of available staff. A former Coinbase employee stated that compliance teams were overwhelmed by the amount of processing they had to do in order to process their alerts in time, causing them to miss out on risks.

“Alerts had been constant but resources were limited,” the anonymous former employee said. “There were more red flags than staff to review them in a meaningful way.”

A former OKX anti-money laundering analyst recounted long hours pushing through alert queues often containing trivial and serious cases. “For crypto there’s this enormous volume,” she said. There’s more on quantity than quality, and that leads to mistakes.’

Pamela Clegg, a seasoned blockchain researcher, said that the banks must usually prove to the regulators that they have the right monitoring systems that flag the suspicious activity but don’t fill compliance officers with too much work. Crypto exchanges, in comparison, tend to get very little equivalent scrutiny.

Alessio Della Santa, who worked in the compliance department for Binance until September 2024, said staff did not have basic data such as verified home addresses, debilitating their ability to investigate suspicious accounts. “Unless you have basic information, it’s very difficult to be able to make informed decisions,” he said.

These are the internal challenge,s and also the sheer volume of transactions still impede effective compliance.

Regulatory Fragmentation and Enforcement Gaps

Regulatory approaches to cryptocurrency are quite varied in the world. Nations such as China and Algeria have banned the trading of crypto out of worries about financial stability. Others, such as Singapore and members of the European Union, have set up licensing regimes that require anti-money laundering compliance.

Europe adopted new regulations in late 2024 concerning transparency and consumer protection measures as part of its Markets in Crypto Assets (MiCA) initiative. These rules were aimed at increasing oversight and curbing the illicit flows by mandating reporting standards for crypto firms.

In the United States, however, enforcement has changed. Under the Trump administration, civil lawsuits against major exchanges such as Coinbase, Kraken and Binance were dropped even as criminal cases against platforms such as OKX and the mixer Tornado Cash kept moving along.

Regulators define exchanges as money transmitters in the U.S. and they are subject to lower compliance standards than banks. Multiple agencies have oversight over banks when it comes to their AML practices, but the IRS has the Small Business and Self Employed division handle oversight of crypto despite their limited resources, according to federal inspector general reports.

Julia Hardy, co-founder of blockchain investigations firm ZeroShadow, said many local law enforcement agencies lack training and proper tracing tools. As a result, they struggle to follow stolen cryptocurrency across public blockchains. Therefore, asset recovery remains difficult despite transparent criminal transactions.

Global Laundering Networks and Exchange Exposure

Beyond Huione and THORChain, there are other instances of wider criminal networks abusing weaknesses of exchanges. Russian money laundering organizations such as the Smart and TGR networks moved at least tens of millions of dollars through exchange infrastructure.

The U.K.’s National Crime Agency carried out Operation Destabilise in late 2024, the biggest anti money laundering operation in the country in 10 years. The operation brought down two Russian-linked laundering networks that funded drug cartels, ransomware groups and espionage fronts.

Chain data revealed that wallets linked to a figure of Smart group have transferred a minimum of $40 million via Binance accounts from 2019 to 2021. An exchange called WhiteBIT, a European exchange, sent at least $8 million more into HTX associated wallets. Exchanges often reply that they cannot block crypto in the incoming transfer since blockchain protocols do not allow for the prevention of deposits.

Critics argue that blockchain allows assets to move freely across borders. However, exchanges can still monitor activity and flag accounts showing suspicious patterns. Therefore, platforms often restrict addresses linked to known criminal networks.

The CZ Pardon and Industry Messaging

The October 2025 pardon of Changpeng Zhao was symbolic of a dramatic change in politics. Supporters hailed the action as a reaffirmation of innovation; critics viewed it as regulatory lenience that handicapped enforcement. Trump, who at one point claimed bitcoin was a “scam,” suddenly appeared as a crypto booster insisting on making the U.S. the “crypto capital of the world.”

Several major names in the crypto industry and companies were known to publicly support Trump’s political campaigns. Coinbase, Kraken, Crypto.com, etc., all made contributions to inaugural and political fundraising efforts. The Winklevoss twins made their donation in bitcoin, which shows the increasing ties between industry interests and politics.

In response to the pardon a 10 foot golden statue of Zhao appeared near the U.S. Capitol that was installed by crypto enthusiasts. Zhao expressed gratitude to fans but rejected a statue-associated meme coin that had quickly rocketed then crashed, leaving many fans with almost worthless tokens.

The political environment changed sentiment among industries. Relaxed enforcement along with high profile pardons gave the impression that compliance failures had limited consequences, emboldening some firms to focus on creating growth and market share.

Conclusion

The ICIJ investigation shows that although they guilty-pleaded, court monitored and the aallowsities regulated, exchanges such as Binance and OKX continued to process hundreds of millions in suspect funds between 2023 and 2025. Internal compliance teams continue to be overwhelmed, and patching up regulatory regimes allow criminal actors to exploit the holes.

Victims lose billions more dollars with scams and illicit money transactions and little chance of recovery. Blockchain transparency has not translated to better enforcement and consumer protection. Sustained reform implies significant investment in compliance infrastructure, improved cooperation with law enforcement, and uniform global standards.

Without meaningful changes, the vulnerabilities of systems will continue to exist, leaving users, institutions, and financial systems at risk of being further harmed.

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