How Criminals Exploit Stablecoins for Money Laundering and Sanctions Evasion: Regulatory Challenges and Cases
Stablecoins, digital currencies pegged to stable assets like the U.S. dollar, have rapidly gained popularity for their speed and ease of cross-border transfers. However, this innovation also presents significant risks, enabling criminals to launder money and evade economic sanctions with increased efficiency and complexity.
Recent investigations and regulatory analyses reveal how stablecoins can create loopholes for illicit finance activities, exacerbated by gaps in current legal frameworks. Experts and advocacy groups warn that without robust anti-money laundering (AML) and sanctions compliance, the U.S. and global financial systems risk becoming havens for criminal actors exploiting stablecoins’ unique features.
Loopholes in U.S. Stablecoin Regulation: The GENIUS Act
In July 2025, the U.S. Congress passed the Guaranteeing Enforceable Necessary Inspections and Uniform Safeguards Act (GENIUS Act), intended to regulate stablecoin issuers and digital asset markets more strictly. However, critics argue the legislation left critical loopholes enabling illicit use.
Transparency International U.S. expressed concern that by failing to include adequate AML and sanctions evasion safeguards, the GENIUS Act inadvertently creates a blueprint for criminals, corrupt officials, and hostile regimes to abuse the U.S. stablecoin market. This omission risks making the financial system a global safe harbor for money laundering and evasion schemes disguised as stablecoin transactions.
Though the Act requires stablecoin issuers to implement sanctions compliance programs — including screening against U.S. Treasury’s Office of Foreign Assets Control (OFAC) sanction lists — enforcement challenges persist. The law grants Treasury discretion to act but does not mandate advance notification to issuers, potentially limiting timely freezing of illicit transactions.
Challenges of Cross-Chain and Multi-Jurisdictional Laundering
Unlike traditional cryptocurrencies that operate on single blockchains, stablecoins often deploy across multiple blockchain networks such as Ethereum and Tron, which criminals exploit to obscure transaction trails. This cross-chain movement creates significant compliance blind spots for monitoring illicit flows.
Moreover, foreign stablecoin issuers, especially those domiciled in jurisdictions with weak AML or sanctions regimes, can issue tokens that circulate within the U.S. market. Although the Treasury Secretary can revoke their registration if illicit finance risks are detected, this reactive measure may be too slow to thwart evolving schemes.
Case Study: Garantex and Grinex Cryptocurrency Exchanges
A notable example of exploitation involves Garantex, a crypto exchange registered in Estonia but operating mainly from Russia. The U.S. Treasury and Estonian authorities found Garantex facilitating over $100 million in illicit transactions linked to darknet markets and ransomware actors. It was sanctioned and had its operating license revoked in early 2022.
Following sanctions, Garantex operators rebranded and created Grinex, a new exchange designed specifically to evade sanctions and launder funds using a ruble-backed stablecoin called A7A5. This rapid adaptation highlights how criminals use stablecoins and crypto exchanges to quickly pivot and avoid enforcement.
Regulatory and Compliance Measures
Under the GENIUS Act, U.S. stablecoin issuers must obtain federal licenses, maintain segregated reserves, and establish AML and sanctions compliance programs with comprehensive risk assessments, customer identification, and transaction screening. Yet, compliance executives face challenges detecting and blocking sophisticated laundering techniques exploiting blockchain anonymity and cross-jurisdictional gaps.
Experts emphasize the need for enhanced coordination between regulators, technology-enabled transaction monitoring, and closing of legal loopholes to prevent stablecoins from being weaponized for illicit activities. Without these measures, the speed, liquidity, and global reach of stablecoins may accelerate money laundering and sanctions evasion schemes.
Conclusion
While stablecoins offer promising benefits for financial innovation and efficiency, their misuse poses a serious threat to sanctions regimes and anti-corruption efforts worldwide. The evolving landscape of digital currency demands vigilant regulatory safeguards and robust compliance mechanisms to prevent stablecoins from becoming conduits for criminal finance.