According to @Flavio_leMec, the legality of on-chain privacy is in focus for builders and traders alike, raising immediate compliance and liquidity questions for privacy tools and tokens, including ZEC and XMR, and for exchanges serving U.S., EU, and UK users, source: @Flavio_leMec tweet on Nov 20, 2025. In the U.S., the Treasury’s OFAC sanctioned Tornado Cash, making interactions with listed mixer addresses sanctionable for U.S. persons and heightening compliance risk for platforms, source: U.S. Treasury OFAC press release, Aug 8, 2022. The U.S. Department of Justice charged Tornado Cash founders with money laundering and sanctions violations, signaling criminal exposure for facilitation of illicit flows, source: U.S. Department of Justice press release, Aug 23, 2023. In the EU, the Transfer of Funds Regulation extends the Travel Rule to crypto-asset service providers, requiring originator and beneficiary data on transfers and pressuring venues to restrict assets and tools that cannot support compliance, source: European Parliament press release on tracing crypto transfers, April 20, 2023. In the UK, the FCA Travel Rule statement requires firms to collect and share beneficiary and originator data when sending or receiving crypto, similarly constraining privacy coins without selective disclosure, source: UK Financial Conduct Authority statement, Aug 17, 2023. FinCEN proposed designating convertible virtual currency mixing as a primary money laundering concern, increasing bank and exchange scrutiny on privacy tooling and flows, source: U.S. FinCEN notice of proposed rulemaking, Oct 19, 2023. Compliance-compatible privacy exists: Zcash supports viewing keys and selective disclosure that enable audits and reporting without public data leakage, which reduces delisting risk versus opaque mixers, source: Electric Coin Company Zcash documentation on viewing keys, official docs accessed 2024. OFAC’s sanctions compliance guidance for the virtual currency industry outlines screening, blocking, and reporting controls that privacy-focused services must integrate to operate lawfully, source: U.S. Treasury OFAC Sanctions Compliance Guidance for the Virtual Currency Industry, Oct 2021. Market outcomes illustrate the trading impact: Binance announced the delisting of XMR in February 2024 amid heightened compliance focus, which reduced centralized venue liquidity for Monero, source: Binance Announcement, Feb 6, 2024. OKX also removed multiple privacy coins in early 2024, reinforcing the pattern of reduced listings and market depth for assets lacking selective disclosure, source: OKX Support Notice, Dec 27, 2023 and Jan 2024 update. Dutch authorities secured a conviction related to Tornado Cash operations in 2024, underscoring European enforcement posture toward opaque mixers and further elevating compliance risk premiums, source: District Court of ’s-Hertogenbosch judgment reported by the Netherlands Public Prosecution Service, May 2024. Taken together, on-chain privacy is possible without breaking the law when protocols implement sanctions screening, selective disclosure, and Travel Rule data transmission, but opaque mixing tools face sustained enforcement and delisting risk that can fragment liquidity and widen spreads for related tokens, source: OFAC 2021 guidance; EU TFR 2023; FCA 2023; FinCEN 2023.

According to the source, EU law enforcement will deepen cross-border cooperation and invest in new capabilities as criminals refine blockchain abuse tactics, source: Europol. The move aligns with the EU Travel Rule for crypto transfers and MiCA timelines that tighten supervision of virtual asset service providers and token issuers across 2024 to 2025, increasing compliance obligations at EU exchanges and stablecoin providers, source: Regulation (EU) 2023/1113 and Regulation (EU) 2023/1114. Criminal methodologies increasingly include chain hopping, mixers, and cross-chain bridges, which remain key focus areas for analytics and enforcement, source: Chainalysis 2024 Crypto Crime Report and TRM Labs 2024 Illicit Finance Report. These enforcement and regulatory measures directly impact VASP compliance processes and counterparty risk screening for EU crypto transfers, source: Regulation (EU) 2023/1113 and Regulation (EU) 2023/1114.

According to the source, Europol states criminal use of cryptocurrencies is becoming increasingly sophisticated, a trend it has detailed in its Internet Organised Crime Threat Assessment. Source: Europol IOCTA 2023. Europol documents laundering methods including mixers and privacy wallets, peel chains, cross-chain swaps via bridges, decentralized exchange hopping, and cash-outs through P2P and OTC brokers. Source: Europol IOCTA 2023. For traders, sustained law-enforcement pressure on obfuscation tools has reshaped on-chain flows before, exemplified by the U.S. Treasury’s August 2022 sanction of Tornado Cash and the subsequent decline in mixer inflows measured on-chain. Sources: U.S. Treasury OFAC; Chainalysis 2023. EU implementation of the Travel Rule via Regulation (EU) 2023/1113 requires crypto-asset service providers to transmit originator and beneficiary information with transfers, increasing compliance obligations for EU-facing exchanges. Source: Regulation (EU) 2023/1113.

According to the source, the UK tax authority HM Revenue & Customs is intensifying compliance outreach to crypto investors over unpaid gains, and HMRC classifies most cryptoasset disposals as taxable capital gains that must be reported via Self Assessment. Source: https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual The UK reduced the Capital Gains Tax annual exempt amount to £3,000 from April 2024, bringing more BTC and ETH profits into scope for tax reporting and payment. Source: https://www.gov.uk/capital-gains-tax/allowances HMRC can obtain user and transaction data from crypto exchanges using statutory information powers and data-gathering notices, while UK crypto firms must comply with the crypto Travel Rule, enhancing traceability of transfers. Source: https://www.gov.uk/guidance/checks-what-hmrc-can-do; https://www.fca.org.uk/firms/cryptoassets/travel-rule Late filing and late payment trigger penalties and interest, increasing effective trading costs for UK-based crypto traders if gains are unreported or paid late. Source: https://www.gov.uk/self-assessment-tax-returns/penalties; https://www.gov.uk/government/publications/interest-rates-for-late-and-early-payments/interest-rates-for-late-and-early-payments For trade planning, HMRC applies pooling and the same-day and 30-day matching rules to cryptoassets, affecting tax-loss harvesting and cost basis calculations, so accurate transaction records are essential. Source: https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual; https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg51500 Cross-border data visibility is set to expand as jurisdictions implement the OECD Crypto-Asset Reporting Framework, to which the UK has committed, increasing compliance risks for offshore holdings. Source: https://www.oecd.org/tax/exchange-of-information/crypto-asset-reporting-framework-and-amendments-to-the-common-reporting-standard.htm