Hidden Road, a brokerage firm supported by Citadel, has officially suspended access to the ByBit exchange for its clients. This decision was made due to disagreements between Hidden Road and ByBit regarding the implementation of Know Your Customer (KYC) verification procedures and Anti-Money Laundering (AML) regulations. ByBit has stated that it will conduct an audit of its brokerage business to ensure compliance with regulatory policies.
KYC verification and AML regulations have become contentious issues in the decentralized finance community. However, research published in the academic journal Policy Design and Practice suggests that AML regulations have had a minimal impact on illicit financial activities. The study found that anti-money laundering policies had less than a 0.1 percent effect on criminal finances, with the costs of compliance exceeding the recovered funds by more than a hundred times. The report also revealed that proceeds from criminal activity accounted for only 3.6% of global GDP in 2018, and this figure remained relatively stable in previous years.
To bypass these regulations, several projects like Tornado Cash, Samurai Wallet, and the privacy coin Monero have offered crypto mixer and tumbler services to users. However, authorities have taken action against some of these projects. In April, the developers of Samurai Wallet were arrested by U.S. federal authorities for allegedly violating money laundering laws. The U.S. Department of Justice charged them with conspiracy to commit money laundering and operating a money transmission service without a license. Similarly, the founders of Tornado Cash were accused of laundering $7 billion in digital assets, leading to their arrest and charges.
One of the Tornado Cash developers, Alexey Pertsev, was arrested by Dutch authorities and is currently serving a prison sentence of 64 months for his involvement in the project.