Task Force Reports Surge in Criminal Use of Stablecoins
Most illegal activities associated with cryptocurrency ledgers are now linked to stablecoins, according to a recent report from the Financial Action Task Force (FATF). This intergovernmental organization focuses on developing policies to combat money laundering and terrorist financing. The findings come at a time when U.S. lawmakers and businesses are advocating for the broader adoption of stablecoins, which are digital tokens pegged to traditional currencies like the dollar. The report highlights a concerning trend of illicit actors, including terrorists and hackers, increasingly utilizing these digital assets.
Stablecoins Under Scrutiny
The FATF’s report reveals a significant rise in the use of stablecoins by various illicit actors since its last assessment in 2024. These actors include drug traffickers and North Korean hackers, who have turned to stablecoins for their perceived advantages. As stablecoins gain traction, the U.S. Senate has passed the “Genius Act,” which aims to regulate these tokens more stringently. This legislative move is part of a broader effort to integrate stablecoins into the traditional financial system, making them more accessible to consumers.
Companies are responding to this regulatory push by launching initiatives that promote stablecoin usage. For instance, Circle Internet Group, the issuer of the USDC token, went public in June and has seen its share price soar. Additionally, World Liberty Financial Inc., linked to former President Donald Trump’s family, has introduced its own stablecoin project. However, despite these advancements, some critics argue that stablecoins may not replace standard currencies and could struggle to gain acceptance beyond the crypto sphere.
Risks of Illicit Use
The FATF report raises alarms about the potential risks associated with stablecoins, particularly when used in “unhosted wallets” that operate outside the oversight of financial institutions. Such scenarios could facilitate criminal activities, making it easier for individuals to evade detection. The report emphasizes that the very features that make stablecoins appealing—such as low transaction costs and reduced volatility—also attract criminals looking to maximize profits.
The report specifically highlights the use of Tether Holdings’ USDT, the largest stablecoin, on the Tron cryptocurrency ledger. It notes a significant increase in the use of various digital assets for fraudulent activities, estimating that approximately $51 billion in illicit on-chain activity related to fraud and scams occurred in 2024. Tether has not commented on these findings, leaving questions about the accountability of stablecoin issuers.
Call for Enhanced Regulation
Despite improvements in government oversight of digital assets, the FATF report indicates that substantial gaps remain in preventing their misuse by criminals and terrorists. The organization urges governments to enhance their licensing and registration processes for virtual asset companies. It also points out the ongoing challenges in identifying individuals and organizations behind decentralized blockchain applications, which provide a range of services from lending to gaming.
The FATF has been recommending standards for the regulation of digital assets since 2019. It plans to release a comprehensive report on stablecoins early next year, which will propose new measures for governments to adopt in order to mitigate illegal activities associated with these digital tokens. As the landscape of cryptocurrency continues to evolve, the need for robust regulatory frameworks becomes increasingly critical to safeguard the financial system.
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