In a landmark development for blockchain forensics, Italy’s Carabinieri have successfully dismantled a sophisticated illegal cryptocurrency exchange operation that had been operating across several European nations. The investigation culminated in the arrest of Franco Lee, a Chinese national accused of running an unauthorized financial service that allegedly laundered nearly €8.8 million through cryptocurrency transactions.
The operation, which was reportedly active between 2021 and 2024, was primarily based out of Rome and Frascati, Italy. Lee’s exchange was found to have circumvented financial compliance frameworks by offering crypto transaction services without regulatory approval. He is believed to have charged clients fees ranging from 5% to 10% per transaction. Authorities indicated that the network’s reach was not confined to Italy alone but extended into countries such as France, Switzerland, and Spain. Lee had even made public appearances at blockchain-related events, including Rome’s “Blockchain Week,” underlining the brazenness of the operation.
To expose and dismantle the network, the Italian Carabinieri’s Cryptocurrency Section employed a combination of proprietary investigative tools and third-party blockchain analysis platforms. Among these, Chainalysis solutions—specifically Reactor and Wallet Scan—played a central role. These tools were instrumental in tracking the movement of illicit funds across various blockchain ecosystems, allowing authorities to map out Lee’s operational network and trace the flow of digital assets.
Through meticulous forensic work, investigators were also able to reconstruct fragmented seed phrases, which ultimately led to the seizure of a portion of the illicit crypto assets. The seized digital currencies included bitcoin, ether, USDT, and Matic, reflecting the diverse portfolio managed within the illegal exchange infrastructure.
Recently, the Italian Carabinieri successfully dismantled an €8.8M illicit crypto exchange using advanced forensics. Learn how they used Chainalysis Reactor, Wallet Scan, and seed phrase decryption to crack the case: https://t.co/ufZDO4FppC
— Chainalysis (@chainalysis) July 15, 2025
Officials have noted that this operation demonstrates a growing level of expertise within European law enforcement when it comes to addressing crypto-related financial crimes. The successful takedown highlights not only Italy’s aggressive stance on crypto-enabled crime but also the value of integrating advanced blockchain forensic tools into law enforcement workflows. Chainalysis Reactor, in particular, enabled detailed transactional mapping across multiple blockchains, making it possible to identify and track complex paths of fund movement.
The Head of the Cryptocurrency Section of the Carabinieri Currency Anti-Counterfeiting Unit, Major Simone Vecchiarello, has indicated that the case sets an important precedent for future investigations. The operation has shown that, despite the pseudonymous nature of blockchain technology, illicit activity can be traced and neutralized when law enforcement agencies have access to the right tools and expertise.
This case also reflects the increasing reliance on public-private collaboration in safeguarding the digital asset ecosystem. The role of analytical platforms like Chainalysis is becoming more central as regulators and law enforcement bodies around the world intensify their efforts to combat financial crimes involving cryptocurrencies. The outcome in Italy may serve as a model for future enforcement actions aimed at curbing the misuse of blockchain technology.
