International finance watchdog warns stablecoins are increasingly used in sanctions evasion and money laundering

The Financial Action Task Force (FATF) said that “stablecoins are the most popular virtual asset used in illicit transactions,” including Iran and North Korea, and therefore calling for stricter oversight of stablecoin issuers in a 42-page report published Tuesday.

In January 2026, the global watchdog said it found stablecoins accounted for most illicit onchain activity. It estimated there was approximately $51 billion in illicit stablecoin activity relating to fraud and scams in 2024.

In its March 2026 report, the task force again warned dollar-pegged tokens have become a key vehicle for illicit finance. It cited a Chainalysis report that said stablecoins accounted for 84% of the $154 billion in illicit virtual asset transaction volume in 2025. The report highlighted cases involving North Korean and Iranian actors using stablecoins such as USDT for proliferation financing and cross-border payments tied to sanctioned activity.

TRM Labs released a report mid-February saying that in 2025, illicit entities received $141 billion in stablecoins, the highest level observed in five years. The report noted that overall stablecoin activity exceeded $1 trillion per month on several occasions last year. Sanctions-related activity accounted for 86% of illicit crypto flows, the report said, with bad actors mostly relying on stablecoin platforms.

The FATF said peer-to-peer transfers via unhosted wallets present a “key vulnerability” because these types of transactions can occur without anti-money laundering controls.

While stopping short of calling for blanket blacklisting, the FATF urged countries to impose anti-money laundering (AML) obligations on stablecoin issuers and consider requiring tools such as wallet freezing and banning or restricting functions embedded in smart contracts.

With stablecoins now exceeding $300 billion in market value, FATF warned regulators must act quickly to close compliance gaps as adoption accelerates.

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