Web3 Cross-Border Payments: The Money Laundering Risks Behind Efficiency Improvements

Introduction

In the current era of accelerated integration of the global digital economy, the method of cross-border payments is rapidly transitioning from the traditional banking card system to blockchain networks. Nowadays, more and more merchants are starting to accept cryptocurrencies as a means of payment, ranging from NFT art, metaverse real estate, to cross-border e-commerce and freelance services.

This transformation not only significantly enhances payment efficiency and expands the boundaries of transactions but also brings dual effects: it pushes cross-border acquiring to the forefront of financial innovation while providing new concealment spaces for illegal activities such as money laundering. In light of this trend, how should Web3 cross-border traders effectively identify and mitigate money laundering risks in their operations? This article will conduct a systematic analysis around this issue.

Evolution of Payment Systems: From Account-Based to Address-Based

To understand the new challenges faced by Web3 cross-border payment processing in the field of anti-money laundering, it is first necessary to clarify the fundamental differences between its underlying operational logic and traditional models.

As shown in the figure below, the traditional Web2 acquiring process is still closely centered around centralized financial institutions such as card organizations, acquiring banks, and clearing banks, which is referred to as the “account-based” system. In the Web3 world, this process has been completely overturned:

In the traditional Web2 system, cross-border payments are identity-centric: all transactions must rely on trusted intermediaries such as banks and payment institutions, which record and settle transactions on their private ledgers, thus forming a closed system.

In contrast, Web3 builds an open payment system. Here, the payment request is not just from an account, but rather a “anonymous digital address” generated through technology. During payment, there is no need to deduct or settle through banks or payment platforms; users can complete transactions directly peer-to-peer. This mechanism relies on algorithms and networks, rather than the credit of a centralized institution.

The transition from Web2 “account-based” to Web3 “decentralized settlement + address-based” is not just a technological upgrade, but a fundamental shift in the underlying financial paradigm.

The payment structure of Web3 has made cross-border payments faster and more accessible, breaking the limitations of countries and traditional banks. However, it is precisely this openness and anonymity that has elevated the risk of money laundering from “offline concealment” to “on-chain invisibility.” Under the cover of anonymous addresses and smart contracts, illicit funds can be infinitely split and mixed, merging into a vast data torrent like droplets of water.

On-chain Acquiring: Common Money Laundering Tactics in Cross-border Payments

In Web3 cross-border payments, money laundering activities exhibit a high degree of technical sophistication and concealment. The following summarizes several typical money laundering schemes:

Strategy 1: Using anonymized mixing coins for money laundering

Money launderers use “mixers” to blend illegal funds with other transactions, thereby severing the source and hiding their tracks. Subsequently, these “cleaned” funds can be used to purchase physical goods in cross-border payments or exchanged for fiat currency, completing the legalization of illicit funds. The purpose of mixing is to cut off on-chain tracking, obfuscate transaction paths, and make it difficult for the receiving party to trace the source of the funds.

Core tactic: Use “mixing coins” to achieve anonymity, allowing funds to come and go without a trace.

Strategy Two: Money Laundering on the Blockchain through DeFi Protocols

Money launderers exploit the openness and composability of decentralized finance protocols to achieve fast and complex fund transfers. By using operations such as cross-chain, exchanges, and yield generation, they complicate the fund paths to a degree that makes them difficult for humans to analyze, causing tracking efforts to get lost in the vast and intricate data on the blockchain.

Typical operations include:

• Cross-chain bridge conversion - transferring illicit funds across different blockchain networks through a cross-chain bridge, increasing the difficulty of tracking;
• Asset Swap - Exchange one asset (such as stolen ETH) for another asset (such as USDT) on a decentralized exchange;
• Staking and Lending - Deposit illicit funds into a DeFi staking pool to earn interest, or use them as collateral to borrow other clean assets for payments.

Core of the scheme: Increase the difficulty of tracking by creating complex paths of fund flow.

Strategy Three: Money Laundering through Confusion with Fake Trade

Money launderers conduct fake transactions through cross-border e-commerce websites they control, using dirty money to purchase their own goods. After the website exchanges the received cryptocurrency into fiat currency, the dirty money is transformed into legitimate sales revenue.

Core of the scheme: using fake cross-border trade as a cover for money laundering activities.

Strategy Four: Using the NFT Market for High-Price Money Laundering

Money launderers perform a self-directed “one-man show” to launder money: first, they create an NFT and then buy it at an exorbitant price using another wallet of their own. The money simply moves from the left pocket to the right pocket, transforming into “clean money” from “art sales,” which can then be used normally.

Core of the scheme: Take advantage of the characteristic of NFTs that lack standard pricing, to fabricate a nonexistent business transaction through self-buying and self-selling, thereby laundering.

Core Challenges of Risk Control: The Multiple Dilemmas of Anti-Money Laundering

The anti-money laundering efforts for Web3 cross-border payment processing are no longer just a simple compliance issue, but a systemic challenge involving technology, law, operations, and international cooperation. The fundamental contradiction lies in the fact that a new decentralized financial system has already formed, but the traditional regulatory logic has not kept pace, resulting in a structural regulatory gap.

1. Technical Aspect: Blind Spots in the Transparent Ledger

The transparency of blockchain is far from sufficient for anti-money laundering. We can see the transactions, but we cannot identify “who is trading” and “why they are trading”. This fundamental contradiction is specifically reflected in four major technical dilemmas:

• Dilemma One: No Owner of the Agreement, Responsibility Falls Void

DeFi protocols like Uniswap have no clear responsible parties, leading to a lack of accountability when risks arise and making regulation difficult.

• Dilemma 2: Contract black box, intentions hard to discern

Money launderers can bundle multiple steps into a single smart contract call, making it difficult for risk control systems to decipher the underlying business logic.

• Dilemma Three: Cross-chain Interaction, Tracking Disconnections

When funds are transferred between different blockchains, their original risk identity cannot be carried over, and the tracking chain is subsequently broken.

• Dilemma Four: Privacy Tools, Polluting Data

Mixers and other technologies can completely disrupt the flow of funds, rendering traditional risk control models that rely on path analysis completely ineffective.

2. Legal and Regulatory Aspects: Responsibilities and Boundaries are Ambiguous

If the technical dilemma is “visible yet unrecognizable,” then the challenges of law and regulation are “well aware of the problem, yet unable to find the responsible person.”

The core of traditional regulation is clear territoriality and responsibility, but the decentralized structure of Web3 is exactly the opposite. When issues arise on “permissionless protocols” like Uniswap, regulators face a fundamental problem: among the numerous roles such as development teams, governance participants, and users, there is not a single clear accountable party.

The Tornado Cash case raises the question: does releasing a neutral open-source code equate to assisting in money laundering?

The cross-border nature of Web3 transaction processing leads to blurred regulatory boundaries. A transaction may be subject to multiple jurisdictions or may fall into a jurisdictional vacuum due to enforcement difficulties, forcing practitioners to survive in the gap between compliance overload and regulatory void.

3. Operational and Risk Control Aspects: Challenges of Millisecond-Level Decision-Making and Irreversible Settlement

The characteristic of Web3 “transaction settlement” minimizes risk control. The acquiring party must complete risk assessment in a very short time, caught in a dilemma between “misjudging legitimate users” and “allowing illegal funds to pass.”

Moreover, the industry generally relies on outdated black-box risk control models and lacks a unified definition of “suspicious transactions,” resulting in inconsistent risk assessment standards. Once an error occurs, the funds will be completely lost due to the inability to reverse the transaction.

4. International cooperation level: The gap between global trading and fragmented regulation.

Web3 payment processing can be completed in just a few minutes, but judicial investigations and regulatory responses can take several months. This has led to institutions using offshore lenient licenses to undertake high-risk businesses at minimal cost, creating a vicious cycle where bad money drives out good.

At the same time, the openness of on-chain data fundamentally conflicts with the privacy protection regulations of off-chain identity information, further exacerbating the lag in regulation.

Building Future Pathways: Systematic Compliance Architecture Design

Anti-money laundering for Web3 cross-border payment collection is a complex systemic issue with interlinked components. It involves multiple dimensions such as technology, law, risk control, and global collaboration, mainly including:

• Technological decentralization: leads to the inability to find a clear legal responsible party;
• Legal regulations are vague: making it difficult for traditional risk control methods to intervene in advance;
• Different regulatory standards among countries: ultimately leading to a significant weakening of enforcement efforts.

These aspects will trigger a chain reaction like a domino effect; therefore, acquirers can no longer focus solely on one aspect, but must build a systematic compliance framework that establishes a solid bridge between the “decentralized” technological world and the “centralized” regulatory requirements.

Conclusion

“Anti-money laundering” has never been about restricting us with rules and regulations, but rather an opportunity to rebuild the trust system. When money can flow easily across countries, when code contracts replace banks, and when algorithms execute transactions automatically, the ultimate competition between enterprises is no longer just about who is faster, but about who is more trustworthy.

For companies providing payment collection services, putting effort into building a complete compliance system is not only a necessary safety measure but also a way to establish their own advantages. It allows you to proactively demonstrate to regulatory authorities, partners, users, and investors that your business is compliant and transparent. In this way, what was originally seen as a cost for compliance investment transforms into valuable trust capital.