Articles
By Uri Volovelsky & Sivan Shlomo Agon
Decentralized Autonomous Organizations (DAOs) are blockchain-based entities that operate without centralized management or shareholders, enabling worldwide token holders the option of participating in their governance through self-executing smart contracts. With approximately fifty thousand DAOs controlling over $30 billion in assets, these organizations offer unprecedented efficiency and global collaboration, enabling stakeholders to participate and contribute to the operation of DAOs regardless of their jurisdiction or physical presence. DAOs, however, also present significant legal and regulatory challenges, particularly concerning liability, contractual enforcement, tax obligations, and oversight. Their decentralized and fluid structure makes it substantively difficult for any single country—including powerful actors such as the United States and the European Union—to assert jurisdiction or exercise regulatory authority over such organizations. In addition to governance considerations, the decentralized, pseudonymous, and borderless structure of DAOs may be exploited for unlawful purposes, most notably money laundering.
This Article examines how DAOs, particularly within the decentralized finance sector, facilitate anonymous cross-border transactions that pose novel and significant money laundering risks. By analyzing existing regulatory responses in major jurisdictions including the United States and the European Union, as well as efforts by key international organizations such as the Financial Action Task Force, the International Monetary Fund, and the United Nations, the Article demonstrates that prevailing regulatory frameworks and enforcement models cannot adequately respond to the distinct challenges presented by DAOs. This regulatory vacuum poses significant risks to global financial stability, the integrity of the financial systems, and core national-security interests, including the prevention of sanctions evasion, counterterrorism and proliferation financing, and the deduction and disruption of state-sponsored, cyber-enabled illicit finance. Accordingly, the Article proposes a novel, modular, risk-based, global anti-money laundering framework tailored to DAOs’ unique operational realities. The proposed framework aligns with principles of functional equivalence, technological neutrality, and transnational cooperation, offering a more effective means of addressing DAO-related, anti-money laundering risks while preserving space for innovation.