DECENTRALIZED FINANCE (DEFI) AND SANCTIONS EVASION: A RISK ANALYSIS OF MIXERS AND PRIVACY COINS IN FINANCING NATIONAL SECURITY THREATS

Abstract

The expansion of Decentralized Finance (DeFi) and Anonymity-Enhancing Technologies (AETs) has complicated the tracking of illicit financial flows. This article analyzes three distinct AETs—Tornado Cash, Monero, and Zcash—to assess how specific protocol mechanisms degrade transaction‑graph attribution and obstruct compliance. Synthesizing technical literature, AML/CFT frameworks, and recent judicial documentation, the study traces how design choices translate into investigative challenges. The analysis yields three key findings. First, “decentralization” rarely eliminates control; instead, it shifts choke points to infrastructure layers such as bridges and RPC providers. Second, while AETs significantly raise attribution costs, their effectiveness is often conditional and dependent on usage patterns. Third, the Tornado Cash enforcement saga illustrates the limitations of applying traditional sanctions to autonomous code. The paper concludes by proposing a mitigation agenda focused on measurable risk reduction at entry/exit points without compromising legitimate privacy.