FATF Warns of 63% Stablecoin Use in Illicit Transactions

The Financial Action Task Force (FATF) recently issued a warning about the increasing prevalence of stablecoin-related crimes, but executives from blockchain intelligence firms have clarified that this warning is not an attack on the cryptocurrency industry. Instead, it underscores the necessity for vigilant monitoring and analysis to ensure the credibility and growth of stablecoins.

The FATF's alert, issued last Thursday, urges regulators to focus on mitigating the risks associated with the potential widespread adoption of stablecoins. Executives from Chainalysis and Asset Reality emphasized that the FATF's call for action is not aimed at curbing the growth of stablecoins but rather at promoting more uniform licensing and supervision of stablecoin issuers across different countries. This includes the deployment of real-time monitoring and closer international collaboration to track, identify, and disrupt illicit financial flows.

According to Chainalysis policy adviser Jordan Wain, stablecoins are the dominant form of cryptoasset for both legitimate transactions and illicit activities. He cited data from the "2025 Crypto Crime Report" by Chainalysis, which identified that 63% of all onchain illicit transaction volumes were denominated in stablecoins. This highlights the need for enhanced regulatory measures to address the risks associated with stablecoins.

Asset Reality co-founder Aidan Larkin stated that the FATF's warning is not a call for a ban on stablecoins but rather a push for greater visibility and better enforcement. He noted that this aligns with the broader strategy announced in 2023 for increased focus on asset recovery, which involves applying the same Anti-Money Laundering (AML) standards used in traditional finance to the digital world.

Larkin also emphasized that applying advanced blockchain intelligence tools is not sufficient for mitigating the risks behind the mass adoption of stablecoins. He suggested that enforcement in the form of secondary sanctions could be debated by politicians in multiple jurisdictions to place more responsibility on crypto entities that knowingly facilitate sanctions evasion. This would pressure compliance and ensure that stablecoins are used responsibly.

Chainalysis' Wain highlighted the inherent transparency and traceability of stablecoins, which often make them a poor choice for criminal activities. He stressed that centralized stablecoin issuers retain the ability to freeze funds when they become aware of their illicit use. This capability was demonstrated when Tether froze and seized $225 million in its USDt (USDT) stablecoin connected to scam activity at the request of the US authorities in 2023.

Following the FATF's call for closer scrutiny of stablecoin use by the Democratic People’s Republic of Korea (DPRK), some blockchain investigators have been analyzing onchain data to gain insights. Crypto sleuth ZachXBT claimed that the public stablecoin issuer Circle and its USDC (USDC) stablecoin are the primary infrastructure used by DPRK IT workers to facilitate payments. ZachXBT pointed out high eight-figure volumes in recent activity, noting that Circle currently does nothing to detect or freeze the activity while boasting about compliance.

Circle froze $57 million in USDC on Solana tied to the Libra team at the request of a US federal court in May. This action demonstrates the potential for stablecoin issuers to take proactive measures to address illicit activities, further emphasizing the need for enhanced regulatory oversight and enforcement.