Paper 2025/1961 Original: eprint.iacr.org/2025/1961 ↗

Anamorphic Monero Transactions: the Threat of Bypassing Anti-Money Laundering Laws

Abstract

In this paper, we analyze the clash between privacy-oriented cryptocurrencies and emerging legal frameworks for combating financial crime, focusing in particular on the recent European Union regulations. We analyze Monero, a leading "privacy coin" and a major point of concern for law enforcement, and study the scope of due diligence that must be exercised under the new law with regard to Monero trading platforms and how it translates to the technical capabilities of the Monero protocol. We both recognize flaws in the legislation and identify technical pitfalls threatening either the effective compliance of, say, Monero exchanges or the anonymity endeavour of Monero itself. Of independent interest is that we turn to anamorphic cryptography (marking one of the first practical applications of the concept) and leverage it to build a hidden transaction layer embedded in the Monero blockchain that obfuscates illegal money flow and circumvents transaction-level attempts at enforcing the EU law.