FATF urges stricter enforcement as stablecoins become crypto’s top vehicle for laundering

Stablecoins now account for the majority of criminal activity flagged on public blockchains, according to the Financial Action Task Force’s annual review of global crypto AML compliance, published Thursday.

The watchdog also found that some criminal organizations have begun developing their own proprietary stablecoins engineered specifically to resist freezes and asset seizures, a new evasion tactic regulators are only beginning to confront.

The FATF urged governments to move beyond simply passing crypto legislation and focus on stronger supervision, enforcement, and international cooperation before criminal networks become even more entrenched within the digital asset ecosystem.

“Jurisdictions need to rapidly implement and effectively enforce the FATF Standards for virtual assets and virtual asset service providers,” the FATF said in its report.

FATF warns Stablecoin crime is evolving beyond traditional crypto laundering

The watchdog’s findings highlight a significant shift in the methods criminals use to transfer and conceal illicit funds. While Bitcoin was once the preferred cryptocurrency for illegal transactions, the FATF said Stablecoin crime has become increasingly dominant due to the speed, liquidity, price stability, and widespread availability of stablecoins across multiple blockchain networks.

Unlike highly volatile cryptocurrencies, stablecoins maintain a relatively fixed value—typically pegged to the U.S. dollar—making them attractive for both legitimate payments and criminal operations seeking predictable value transfers.

The FATF warned that organized criminal groups are no longer relying solely on existing stablecoins. Instead, some networks are creating their own digital tokens engineered to prevent issuers or authorities from freezing assets linked to illicit activity.

According to the report, these developments demonstrate how quickly financial crime evolves alongside technological innovation, reinforcing the need for regulators to adapt just as rapidly.

Chainalysis, a leading blockchain analytics firm, has previously noted that stablecoins have become an increasingly significant component of illicit crypto transactions because they offer lower volatility and easier cross-border transfers compared with traditional cryptocurrencies.

Travel Rule adoption improves, but enforcement still lags

Despite measurable progress in legislative adoption, the FATF said implementation remains inconsistent across jurisdictions.

According to the report, 83% of surveyed countries have now incorporated the FATF Travel Rule into their legal frameworks, an increase from 73% recorded a year earlier. However, the organization stressed that passing legislation alone is insufficient if regulators fail to actively supervise compliance.

The Travel Rule requires financial institutions and virtual asset service providers (VASPs) to collect and transmit identifying information about both senders and recipients for qualifying cross-border crypto transactions. The FATF’s baseline threshold is transactions exceeding $1,000 or €1,000, although jurisdictions may establish lower limits.

FATF President Elisa de Anda Madrazo has repeatedly emphasized that effective implementation—not simply legal adoption—is essential to preventing cryptocurrencies from being exploited for money laundering and terrorist financing.

The report noted that many regulators still lack adequate supervisory frameworks, while some jurisdictions have yet to establish meaningful enforcement actions against non-compliant crypto businesses.

As a result, Stablecoin crime continues to exploit inconsistencies between countries, particularly where oversight remains weak or fragmented.

Offshore exchanges and DeFi remain major regulatory challenges

Beyond stablecoins, the FATF identified offshore virtual asset service providers and decentralized finance (DeFi) platforms as growing concerns for global regulators.

Many crypto firms continue offering services across borders without obtaining licenses in every jurisdiction where they operate. This makes regulatory oversight significantly more difficult and creates opportunities for criminals to move funds through less regulated markets.

The report also highlighted DeFi as a potential blind spot. Because many decentralized protocols operate without traditional intermediaries, authorities face challenges in identifying responsible entities and applying existing AML regulations.

The FATF warned that unless regulators improve risk assessments for decentralized financial services, illicit actors could increasingly migrate toward these platforms.

Industry experts have similarly cautioned that DeFi presents unique compliance challenges. Ji Kim, President and Acting CEO of the Crypto Council for Innovation, has previously argued that regulation should focus on addressing identifiable risks while allowing innovation to continue within the sector.

The FATF’s latest assessment suggests regulators must strike that balance more effectively as blockchain-based financial services continue to expand globally.

Global cooperation seen as critical to combating Stablecoin crime

The report concludes that stronger international coordination will be necessary to reduce illicit financial activity involving digital assets.

While regulatory progress has accelerated over the past year, the FATF believes fragmented enforcement continues to create opportunities for sophisticated criminal organizations to exploit cross-border inconsistencies.

The watchdog encouraged countries to improve information sharing between regulators, law enforcement agencies, and private-sector crypto firms while strengthening oversight of licensed virtual asset service providers.

As stablecoins become increasingly integrated into global payments, remittances, and financial markets, regulators face mounting pressure to ensure legitimate innovation is not overshadowed by criminal misuse.

The FATF’s latest findings underscore that Stablecoin crime is no longer a niche concern but a mainstream financial crime issue requiring coordinated international action. Without stronger enforcement of existing AML standards and more consistent supervision across jurisdictions, the organization warned that criminal networks will continue adapting faster than the rules designed to stop them.

With digital assets becoming a permanent part of the global financial system, the race between innovation and regulation is intensifying—and the FATF is making it clear that governments can no longer afford to fall behind in tackling Stablecoin crime. As authorities close existing loopholes, maintaining effective cross-border cooperation will remain essential to limiting the continued growth of Stablecoin crime and protecting the integrity of the global financial system.