Criminals are increasingly using stablecoins to move illicit funds, prompting the Financial Action Task Force (FATF) to urge governments to tighten oversight of the digital asset sector. In its latest review, the global anti-money laundering watchdog said most identified onchain criminal activity now involves dollar-backed stablecoins and warned that gaps in regulation continue to create opportunities for illicit finance.
The FATF said some criminal networks have gone a step further by creating their own stablecoins designed to make it harder for authorities to freeze or seize assets. It added that inconsistent regulation, offshore virtual asset service providers, and uneven enforcement across jurisdictions continue to create opportunities for illicit finance.
The FATF’s annual review assessed how countries are implementing anti-money laundering standards for cryptocurrencies. It found that while 83% of surveyed jurisdictions have incorporated the Travel Rule into their legal frameworks, enforcement remains uneven, particularly for cross-border crypto transactions.
The Travel Rule requires financial institutions and virtual asset service providers to collect and share information about the sender and recipient of qualifying transactions. Regulators consider it a key measure for detecting and preventing money laundering and terrorist financing.
According to the report, only 99 jurisdictions have either implemented the Travel Rule or are actively working toward adopting it, leaving regulatory gaps that criminals can exploit.
The watchdog also urged stablecoin issuers to tighten their risk controls.It recommended that stablecoin issuers have the capability to freeze or permanently remove tokens linked to wallets identified by authorities as suspicious.
While Tether has used these measures in past law enforcement cases, FATF said many stablecoin issuers follow different standards. It also noted that some jurisdictions do not require issuers to cooperate closely with investigations.
The recommendations could increase compliance costs for issuers. Companies may need to strengthen their Know Your Customer (KYC) procedures and invest in more advanced blockchain monitoring systems to meet regulatory expectations.
Meanwhile, a March report identified offshore virtual asset service providers (oVASPs) as one of the biggest weaknesses in the global fight against financial crime. FATF President Elisa de Anda Madrazo said the firms create “blind spots” that criminals exploit to commit fraud and finance terrorism.
Some regulators have already increased scrutiny. In Thailand, for example, the Bank of Thailand and the country’s Securities and Exchange Commission recently began reviewing high-volume stablecoin transactions after identifying transfers that appeared to be structured to avoid disclosure requirements.
