California Man Sentenced for Bitcoin Money Laundering

A California man has been sentenced for his role in using Bitcoin to launder the proceeds of an operation selling MDMA on the dark web.

John Khuu, 29, of San Francisco, California, was sentenced to 87 months in federal prison after pleading guilty to conspiracy to commit money laundering and conspiracy to operate an unlicensed money-transmitting business.

According to Texas police, Khuu’s operation imported MDMA from Germany and sold it on various dark web markets, accepting payment in Bitcoin. Khuu would allegedly trade the Bitcoin stored in seller accounts for U.S. currency and launder the dirty money through “hundreds of transactions and dozens of financial accounts.” He has been indicted separately in the Northern District of California and charged with unlawful importation of a Schedule I controlled substance.

Khuu’s arrest was part of Operation Crypto Runner, a joint multiyear investigation by the Department of Justice (DOJ), the U.S. Secret Service (USSS), and the Postal Inspection Service (PIS), announced in November 2022. The operation resulted in 21 arrests in 2022 for individuals acting as “money mules,” aiding in the laundering of proceeds from various crypto scams, including real estate, email, and romance scams. Last month, a Montana man was also convicted for crypto money laundering during the federal crackdown.

Crypto Money Laundering Crackdown

The federal government is taking a broad approach to combat Bitcoin money laundering. Blockchain analytics firm Chainalysis estimates that 2024 will likely see the highest amount ever, surpassing $40 billion, laundered through cryptocurrency, exceeding the record set in 2023.

The firm believes this number would be even higher if drug-related proceeds were included, noting the difficulty of tracking crime-related money that comes from the real world. A 2024 risk assessment from the U.S. Treasury reveals that, while traditional money laundering methods remain predominant, the use of crypto for laundering drug money is growing in popularity and sophistication.

Operations linked to crypto drug laundering are increasingly international. The DEA’s latest National Drug Threat Assessment identifies how Mexican cartels in the U.S. engage in profitable partnerships with China-based money laundering organizations, utilizing cryptocurrency to launder drug proceeds.