Luxembourg’s financial watchdogs have sounded the alarm, flagging virtual asset service providers (VASPs) as high-risk players in the battle against money laundering. In the freshly released 2025 National Risk Assessment (NRA), the tiny yet influential European nation has underscored its concerns over the crypto industry’s vulnerability to financial crime, citing its sprawling international reach and complex legal frameworks as significant factors.
High-Stakes and High Risks
So, what’s the fuss all about? According to the NRA, the inherent risk level of VASPs is classified as “High.” This isn’t merely a result of their burgeoning transaction volumes or wide client reach. It’s the whole package—their digital nature, cross-border operations, and the intricate web of legal structures that underpin their existence. Luxembourg’s concerns aren’t entirely new, either. Back in 2020, the country had already identified VASPs as an emerging risk, which was only amplified in the 2022 report, marking crypto assets and virtual currencies as “very high” risk for money laundering.
But why now? Well, the crypto space has been evolving at breakneck speed, especially with the European Union’s regulatory framework, Markets in Crypto-Assets (MiCA), setting the stage for a more unified regulatory environment across its 27 member states. This mirrors efforts in other regions, such as the UK’s FCA seeking public and industry views on crypto regulation, highlighting a global trend towards tighter oversight.
Regulatory Moves and Market Shifts
The MiCA framework is revolutionizing the regulatory landscape. It aims to harmonize crypto regulations, and since the beginning of 2025, crypto asset service providers have been stepping up to acquire the necessary licenses to operate legally within the EU. A recent example includes the cryptocurrency exchange Kraken, which launched regulated derivatives trading in May. Meanwhile, Crypto.com has also secured the required license to offer similar services.
However, not all players are on board with MiCA’s new requirements. Tether, the stablecoin behemoth behind USDt (USDT), has balked at complying with these rules. This defiance has led to it being delisted from major platforms like Crypto.com, Coinbase, and Binance within the EU—a move that has sent ripples through the market. For a deeper dive into the regulatory implications, see our coverage of the SEC’s latest guidance.
Money Laundering and Cryptocurrencies: A Growing Concern
With the increasing integration of cryptocurrencies into the global financial system, their allure for money laundering activities seems to be growing too. Just this month, a significant crackdown in Hong Kong saw the arrest of 12 individuals involved in a cross-border money laundering scheme using crypto and over 500 stooge bank accounts to funnel a staggering $15 million.
In a related development, European law enforcement recently apprehended 17 suspects linked to a “mafia crypto bank,” accused of laundering over 21 million euros ($23.5 million) for criminal networks based in the Middle East and China. This operation led to the seizure of 4.5 million euros ($5 million) in assets, ranging from cash and crypto to luxury vehicles and firearms.
The Road Ahead: Regulation and Innovation
So, what’s on the horizon for the crypto world in Luxembourg—and beyond? It’s clear that as cryptocurrencies become more entrenched in our financial systems, the pressure to tighten regulations will only increase. The MiCA framework is a significant step toward achieving regulatory clarity and security across Europe, but as the Tether saga illustrates, not everyone is willing to play ball.
The challenges posed by money laundering and other illicit activities using crypto are daunting, yet they also highlight the need for continued innovation in regulatory practices. While Luxembourg’s classification of VASPs as high-risk is a wake-up call, it also raises questions about how the industry can adapt and evolve in response to these mounting pressures.
As we move further into 2025, the crypto community will need to navigate this complex regulatory landscape carefully. Balancing innovation with security, and growth with accountability, will be crucial. The stakes are high, and the eyes of both regulators and the market are watching closely to see how this dynamic sector responds.
Source
This article is based on: Luxembourg flags crypto companies as high risk for money laundering
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Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
