Cross-Chain Bridges

Cross-chain bridges fragment transaction histories across multiple blockchains, creating additional complexity that obscures the origin of illicit funds. This aligns with the layering stage by distancing proceeds from their source and hindering investigators' ability to trace the assets.

Criminals leverage decentralized cross-chain bridging protocols as an alternative transfer channel with minimal or no regulatory oversight, enabling rapid and opaque movement of illicit funds across multiple blockchains. By exploiting lock-and-mint bridging models and minimal-KYC services, they fragment transaction histories and complicate efforts to trace the provenance of assets. This vulnerability centers on the bridging channel’s lack of robust controls, making it the primary avenue of exploitation in this technique.

• Aggregates publicly available information about decentralized bridge platforms, including KYC policies and user experiences.
• Allows investigators to identify minimal-KYC or non-compliant bridges used to facilitate illicit cross-chain transfers.
• Supports enhanced due diligence by verifying public disclosures (e.g., social media, community forums, platform announcements) around cross-chain services and user activities.

• Consolidates information on addresses and entities flagged for suspicious or illicit on-chain activities.
• Assists in identifying linkages between cross-chain bridge transactions and known fraudulent addresses or watchlists.
• Facilitates rapid detection of bridging patterns involving addresses previously reported for scams, hacks, or other unauthorized activities.

• Captures account creation details, KYC documentation, and transaction logs within VASP platforms, including cross-chain bridging transactions to and from user accounts.
• Enables investigators to detect suspicious bridging activity, such as rapid or unexplained changes in bridging frequency, usage of minimal-KYC bridging services, and potential layering via multiple blockchains.
• Verified identities and beneficial ownership details help attribute bridged funds and identify parties involved in cross-chain movements, supporting deeper AML investigations.

• Contains verified customer identities, ownership details, risk profiles, and declared financial backgrounds.
• Enables comparison of a customer’s stated wealth or transaction patterns against high-value or frequent cross-chain bridge transfers.
• Helps identify inconsistencies or anomalies in bridging activities that do not align with the customer’s known profile or expected financial behaviors.

• Provides on-chain transaction details, including bridging transactions, timestamps, wallet addresses, and transferred amounts across different blockchains.
• Enables cross-chain flow analysis to identify elaborate chain-hopping or layering schemes that obscure illicit fund origins.
• Assists investigators in detecting irregular bridging activities lacking clear business rationale and tracking indicators such as structured transactions or rapid, successive cross-chain hops.

Apply deeper scrutiny to customers frequently executing cross-chain bridging transfers by verifying the legitimate source of funds and clarifying the rationale for bridging across multiple blockchain networks. If bridging appears inconsistent with a customer’s usual profile, request detailed narratives or supporting documents explaining the necessity of frequent or high-value bridge usage.

Incorporate cross-chain bridging scenarios into real-time or periodic transaction monitoring rules. Trigger alerts for repeated or high-value bridging transactions, abrupt changes in bridging destinations, and bridging to networks not aligned with the customer's known activity or stated purpose.

Use specialized blockchain analytics tools to detect and trace cross-chain bridging transactions. Specifically, monitor patterns such as rapid bridging sequences, lock-and-mint mechanisms, or transfers to anonymity-focused networks, which are commonly exploited for layering and concealing fund flows across different blockchains.

Provide focused training modules on cross-chain bridging vulnerabilities, including how criminals use such platforms for layering. Instruct staff to identify red flags such as unusually complex bridging patterns, short holding times between chains, or bridging to privacy-enhanced blockchains without a legitimate business explanation.

Factor cross-chain bridging usage into the institution’s customer risk scoring. Assign higher risk ratings to accounts or clients whose bridging activity, such as frequent transfers to multiple blockchains, indicates potential layering. Adjust monitoring thresholds or require Enhanced Due Diligence (EDD) based on these revised risk profiles.

Leverage open-source intelligence tools and external databases to check whether certain bridging protocols or addresses have been associated with exploits, high-profile hacks, or laundering operations. Block or scrutinize bridging transactions with negative hits or suspicious media coverage, especially if they contradict the customer’s stated purpose.

Participate in collective information-sharing initiatives with industry peers and relevant authorities, focusing on known illicit bridging protocols, addresses linked to hacking or scam incidents, and emerging bridging-layering typologies. Exchanging such intel helps institutions identify and block suspicious cross-chain activity earlier.

Limit or block access to bridging platforms known for minimal KYC or repeated misuse in laundering schemes. Impose transactional caps or additional step-up verification for bridging-related transfers when a customer's activity shows red flags, such as routing through multiple chains in a short period.

Continuously reassess customers who engage in cross-chain bridging, especially if spatial or transactional patterns change significantly. Update risk profiles accordingly and verify that bridging activity aligns with the customer's stated business or investment purposes. Investigate unexplained spikes in bridging volume or repeated bridging to less transparent networks.

• Criminals use cross-chain bridges to convert assets from public blockchains into privacy coins (or vice versa), capitalizing on privacy features such as ring signatures or stealth addresses.
• The bridging process severs the visible chain of custody, stacking privacy-enhancing tools to further complicate transaction history reconstruction.
• When privacy coins are introduced or exited through bridging, investigators lose critical links in following the money due to anonymized addresses and obscured transaction metadata.

• Criminals utilize multiple self-hosted (unhosted) wallets across different chains to send and receive bridged assets, avoiding centralized exchange scrutiny.
• Limited or no KYC on these wallets aids in creating multiple layers of transactions, particularly when bridging tokens among various blockchains in rapid succession.
• By controlling private keys privately, criminals ensure the cross-chain flow remains outside typical regulatory oversight, concealing the definitive source or beneficiary of illicit proceeds.

• Criminals bridge stablecoins across multiple blockchains, taking advantage of low volatility to move high-value sums without attracting price fluctuation risks.
• Lock-and-mint bridging can mask the original chain’s transactional trail, creating a gap in forensic accounting.
• With many decentralized stablecoin bridges lacking rigorous KYC, layering illicit funds becomes easier, as investigators find fewer reference points to correlate incoming and outgoing transfers.

• Criminals exploit cross-chain bridge protocols to lock publicly ledgered assets (e.g., BTC, ETH) on one blockchain and mint equivalent tokens on another chain, breaking a direct, traceable link between the original and subsequent transactions.
• By scattering transaction histories across multiple public ledgers, investigations become more complex, as conventional blockchain analytics typically focus on a single chain.
• Minimal or no KYC requirements on many decentralized bridging platforms further obfuscate beneficial ownership and complicate law enforcement efforts.

• Cross-chain bridges frequently operate on a lock-and-mint model, where original tokens are locked on one blockchain and minted as wrapped tokens on another.
• This lock-and-mint mechanism breaks the direct transactional link between the source and destination of funds, impeding traditional blockchain tracing.
• Criminals exploit wrapped tokens to achieve greater interoperability and obscure provenance, as wrapped assets often appear fungible and decoupled from the locked originals.

• Criminals exploit lock-and-mint bridging to create new tokens on one chain in exchange for locked tokens on another, breaking direct transactional links and obscuring origin.
• The decentralized nature of bridging often bypasses conventional KYC measures, enabling illicit funds to move freely across multiple blockchain networks without a clear paper trail.
• Large collateral pools held by bridges can facilitate high-value laundering, allowing criminals to embed large sums in ostensibly legitimate liquidity flows.
• Integrating bridging with minimal-KYC wallets or other decentralized platforms further complicates investigations, impeding authorities’ ability to trace transactions across disparate chains.

Cybercriminals leverage cross-chain bridges to layer illicit funds across multiple blockchains, severing traceable links for investigators.

• They exploit lock-and-mint bridging and minimal-KYC decentralized platforms to obscure the source and flow of stolen or illicitly obtained crypto assets.
• By rapidly moving tokens among different chains, these actors break transaction continuity, complicating financial institutions' efforts to track ownership, identify beneficiaries, and detect suspicious patterns.
• An example is the Lazarus Group, known to deploy bridging techniques to launder large sums of misappropriated funds, further hindering conventional monitoring systems.