New York Prosecutor Sends Strong Signal: Unlicensed Crypto Operations May Face Criminal Charges

New York Manhattan District Attorney Alvin Bragg recently issued an important warning, calling on state legislators to formally criminalize unlicensed cryptocurrency operations. This move reflects the increasingly tough stance of U.S. law enforcement on crypto regulation. According to reports, a $51 billion underground economy is expanding within regulatory blind spots, with related illegal funds used for money laundering, drug trafficking, and various scams, making crypto assets a key channel.

Current Issues: Regulatory Gaps and Underground Economy

Size and Flow of the Underground Economy

According to reports, New York faces a crypto-related underground economy worth up to $51 billion. These funds are mainly used for:

• Money laundering activities
• Financing drug transactions
• Transfer of proceeds from various scams
• Illegal weapons trading

Worse still, data from blockchain security firm TRM Labs shows that the scale of illegal cryptocurrency activities reached a record high in 2025, with approximately $158 billion in illegal funds flowing throughout the year, indicating the problem has far exceeded the scope of a single region.

The “Vulnerabilities” of Unlicensed Crypto ATMs

Bragg specifically highlighted the issue of unlicensed crypto ATMs. According to reports, the main problems with these devices include:

• Charging fees as high as 20%
• Conducting exchanges despite suspicious fund sources
• Becoming key nodes in criminal chains
• Providing a direct digital channel for illegal cash

Manhattan prosecutors have already cracked multiple related cases, including an operation involving unlicensed Bitcoin ATMs with a case value of $5 million.

Regulatory Direction: From Warnings to Legislation

Core Policy Recommendations

In a speech at New York Law School, Bragg explicitly stated that cryptocurrency enforcement has been listed as a core priority during his term, alongside combating gun crimes and theft cases. His specific policy suggestions include:

• Implementing mandatory licensing for all crypto-related businesses
• Fully introducing customer due diligence requirements
• Establishing clear criminal penalties

The core logic of these recommendations is to close existing legal loopholes through legislation, preventing unlicensed operators from facilitating large-scale money laundering while evading criminal responsibility.

New York’s Unique Position

If the relevant bill passes, New York will become the 19th state to criminalize unlicensed crypto operations. This means that the state-level divergence in U.S. crypto regulation will continue, but the overall trend clearly points toward a stricter enforcement framework.

Industry Impact Assessment

Practical Challenges for Law Enforcement

In the reports, Bragg admitted that law enforcement cannot rely on criminals “making mistakes,” reflecting a core issue: crypto crimes are deeply integrated into the traditional criminal ecosystem. Ari Redbord, head of policy at TRM Labs, pointed out that future enforcement effectiveness will depend on three factors:

• Investment in blockchain forensic tools
• Technical capacity building of law enforcement personnel
• The judicial system’s acceptance of digital asset evidence

This means that legislation alone is not enough; building enforcement capabilities is equally critical.

Potential Impact on Crypto Businesses

From a policy perspective, this trend could lead to several changes:

• Further shrinking of the unlicensed operation space
• Increased compliance costs for small and medium-sized crypto businesses
• Enhanced competitive advantage for licensed operators
• Higher requirements for user identity verification and fund tracing

Summary

The move by New York prosecutors signals an important shift in U.S. crypto regulation from “observation” to “active enforcement.” The $51 billion underground economy and $158 billion in annual illegal funds flow demonstrate that this is not just a worry but a real regulatory pressure.

The key point is that the policy recommendation to criminalize unlicensed crypto operations marks a change in strategy: no longer solely relying on tracking crimes after they occur, but attempting to prevent issues by raising entry barriers and legal costs. This means that compliance is no longer optional but a prerequisite for survival in the industry. As a financial hub, New York’s demonstration effect is likely to encourage more states to follow with similar legislation.