Tracing Crime Across On- and Off-Chain: What Governments Need to Know in 2026

In many areas, illicit activity involving crypto-assets and stablecoins keeps evolving faster than most public agencies can adapt. Where investigators once dealt mainly with bitcoin and mixers, they now face high-speed stablecoin ecosystems, cross-chain laundering, and OTC (over the counter) networks that move illicit funds globally in minutes, if not almost instantly. This list describes both government bodies — law enforcement, FIUs, tax as well as things they investigate or deal with such as financial crime, tax, and asset recovery, the challenge is no longer whether crypto matters, it’s how to keep pace.

Continue reading this article to learn more about:

• Why stablecoins have become the primary rails for crypto-enabled crime
• How criminals exploit on-chain and off-chain networks to evade detection
• What CARF and new data flows mean, and don’t mean, for public authorities
• How governments can strengthen asset recovery and disruption efforts
• The role of public–private cooperation and where AI can, and cannot, help

Stablecoins: The New Rails for Criminal Finance

A major shift highlighted by investigators is the migration of criminal activity from volatile assets such as bitcoin to stablecoins, more specifically USDT on the TRON network. For criminals, the appeal is straightforward:

• Extremely fast, cheap transactions
• Price stability
• Simple user experience
• Broad availability through OTC brokers, often in less or unregulated markets

These features have effectively turned stablecoins into programmable, borderless cash. Criminal networks that previously operated in silos are now linked through shared OTC infrastructures — from drug cartels to cybercrime groups to international fraud rings.

The result: criminals no longer need technical sophistication. They simply bridge, send, and off-ramp — often into real-world assets like property and vehicles — before most agencies can even initiate a (cross-border) legal request.

The Investigation Gap: Fast Criminals, Slow Processes

Government agencies face a widening operational gap:

• On-chain movement is instantaneous;
• Cross-border cooperation often takes months or years;
• Off-chain activity inside exchanges is largely invisible without direct cooperation.

Investigators often watch funds move across six or seven blockchains in minutes, only to hit an OTC desk where freezing becomes nearly impossible. Traditional cross-border collaboration channels are incompatible with this speed.

Even domestically, information requests to service providers can take weeks – by then, funds have moved through multiple internal ledgers and left the exchange entirely.

CARF Data: A New Opportunity

CARF (Crypto Asset Reporting Framework) will not only give tax administrations, but also financial crime units unprecedented visibility into crypto ownership and identity information. For governments, this represents:

• A major new intelligence source
• A way to detect previously hidden users
• A starting point for linking identities to criminal patterns

But CARF data is typically restricted to tax purposes, limiting how FIUs, law enforcement and security services can use it unless domestic laws provide gateways. Without careful policy design, especially about exchange of information among domestic authorities, CARF risks becoming siloed despite its power.

Asset Recovery: Disruption Is Possible, but Resolution Is Hard

Crypto seizures are now reaching multi-billion-dollar levels, making digital assets one of the most successful asset classes for recovery. Stablecoins also reduce valuation risk, making them attractive for forfeiture.

But key limitations remain:

• Freezing stablecoins only blacklists addresses — it doesn’t return funds to victims.
• As blacklisted addresses technically still hold assets on-chain, issuers may be required to still have sufficient backing for blacklisted assets, raising regulatory and practical questions.
• Real recovery increasingly depends on tracing and mapping value transfers also off chain, for example into other property, bank accounts, or shell structures.

Tools like insolvency and bankruptcy are proving powerful, giving states and victims access to broader pools of assets — not just what sits on-chain.

Why Criminals Seem “Ahead”

Criminals succeed not because they are more sophisticated, but because:

• They share knowledge quickly (Telegram, closed forums, even in-person gatherings).
• On-chain tools are now extremely easy to use which means that criminals also know exactly what loopholes to leverage.
• Investigators must meet evidential standards that criminals don’t face.
• Law enforcement needs to get everything right; criminals only need to succeed occasionally.

In this environment, governments cannot expect law enforcement to keep up by itself.

A New Phase of Public–Private Cooperation

The panel’s strongest message was that governments cannot do this alone. What is needed is strong public-private cooperation that is not only driven and carried by commercial interests.

Emerging cooperation models include:

• Faster freezing pipelines between investigators and stablecoin issuers
• Automated alerting networks that notify exchanges when flagged funds move
• Private firms producing court-ready tracing reports to support stretched law enforcement units
• Joint initiatives that accelerate evidence collection and freeze decisions

Public agencies often worry about reliance on proprietary tools, black-box logic and commercial incentives — and rightly so. The answer is not avoidance but governance:

• Establish standards for explainable, auditable analytics
• Create frameworks that enable private actors to support, not replace, public authority
• Ensure transparency around methodology used in evidentiary tracing

Done correctly, this shifts scarce law enforcement time toward high-impact cases.

AI: Use Carefully, Not Blindly

AI can help filter data, surface patterns, and reduce manual workload. But it also introduces risks:

• Automatically generated STRs that overwhelm FIUs with noise
• “Confidently wrong” AI-generated tracing paths
• Black-box models that cannot be defended in court
• Tools that mishandle numerical reasoning — critical for asset tracing
• Data protection challenges

What Governments Should Prioritise Now

Across tax, law enforcement, regulators and FIUs, several priorities emerged clearly:

• Recognise that stablecoin-enabled crime is a strategic threat, not a niche one.
• Build domestic gateways permitting CARF tax data to be shared from tax administrations to financial crime units, police and law enforcement..
• Centralise specialist crypto expertise rather than spreading resources thinly.
• Modernise asset recovery laws to address freezing, confiscation and compensation for both on- and off-chain assets.
• Build structured, auditable public–private partnerships with clear standards.
• Pursue disruption as well as recovery — even partial seizures reduce harm and slow criminal networks.

Stablecoins and cross-chain ecosystems aren’t going away. The question for governments is whether they remain a tactical advantage for criminals — or a traceable environment where smart policy, cooperation and technology turn transparency into a tool for public protection.

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