Global watchdog flags stablecoins as growing tool for illicit finance

THE Financial Action Task Force (FATF), an international body that sets standards for combating money laundering and terrorism financing, has raised concerns about the rising use of stablecoins in illicit activities. In its latest report, the watchdog highlighted that these dollar-pegged digital tokens have become the dominant vehicle for fraud, scams, and sanctions evasion, Coin Desk reported.

Key findings

According to FATF, stablecoins now represent the bulk of virtual assets involved in illegal transactions, with actors in countries such as Iran and North Korea increasingly relying on them. The group emphasised the need for stronger regulatory oversight over stablecoin issuers, as peer-to-peer transfers via unhosted wallets pose significant risks.

Recent research from FATF, Chainalysis, and TRM Labs reveals that stablecoins dominated illicit crypto activity in both 2024 and 2025. Chainalysis reported that in 2025, 84 percent of the $154 billion in illicit crypto transactions involved stablecoins. Meanwhile, TRM Labs found that illicit entities received $141 billion in stablecoins last year, the highest level recorded in five years. Their analysis showed that overall stablecoin activity occasionally exceeded $1 trillion per month, with sanctions-related flows accounting for 86 percent of illicit transactions.

FATF recommendations

FATF’s 42-page report published in March 2026 urges countries to adopt robust anti-money laundering (AML) measures for stablecoin issuers. The watchdog highlighted several key recommendations, one of which is the implemention of AML rules for all stablecoin issuers.

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It called on authorities to address risks from peer-to-peer transfers using unhosted wallets, which bypass traditional compliance checks.

It also urged them to consider regulatory tools such as wallet freezing and limitations on certain smart-contract functions to curb illicit use.

While the body did not call for a full ban on stablecoins, it warned that with the market now surpassing $300 billion, regulators must act swiftly to close compliance gaps and prevent further exploitation by bad actors.

Context

In January 2026, FATF had already reported that stablecoins accounted for the majority of illicit on-chain activity, estimating $51 billion tied to fraud and scams in 2024. The latest report underscores the ongoing challenges posed by dollar-pegged tokens, including their use in cross-border transactions connected to sanctioned entities.

As the adoption of stablecoins accelerates, FATF emphasizes that national authorities must strengthen oversight to prevent these digital assets from becoming entrenched tools for financial crime.