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Blockchain and the Tracing of Illicit Financial Flows: On-Chain Analysis, Off-Chain Attribution, and Asset Recovery

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  • de Araujo, Felipe Telles Veloso

Abstract

This paper argues that blockchain has not eliminated the traditional problem of asset concealment, but has profoundly changed its form. Unlike cash, transactions on public blockchains leave durable, auditable, and chronologically ordered traces. That does not amount to absolute transparency. It means, rather, that the investigation of illicit financial flows now depends on a double movement: technical reading of the on-chain trail and production of off-chain evidence capable of attributing that trail to concrete persons, companies, or criminal organizations. The paper explains why pseudonymity is not anonymity, examines the main forensic heuristics used in blockchain analysis and their evidentiary limits, and shows how mixers, privacy-enhancing technologies, cross-chain bridges, and DeFi increase investigative complexity without making attribution impossible. It then discusses major international cases, recent Brazilian regulation and case law, and the institutional importance of cooperation among courts, regulators, exchanges, and investigators. The central claim is that blockchain’s principal contribution to the repression of illicit financial flows is not total transparency, but a change in the evidentiary regime: the challenge is less to locate value in the abstract than to reconstruct trajectories, test control hypotheses, and transform technical traces into valid proof and effective asset recovery.

Suggested Citation

  • de Araujo, Felipe Telles Veloso, 2026. "Blockchain and the Tracing of Illicit Financial Flows: On-Chain Analysis, Off-Chain Attribution, and Asset Recovery," LawArchive k5n7a_v1, Center for Open Science.
    • Handle: RePEc:osf:lawarc:k5n7a_v1
    DOI: 10.31219/osf.io/k5n7a_v1
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