For decades, our government has counted primarily on the nation’s banks to identify suspicious activity and assist law enforcement and national security agencies in fighting criminals and terrorists. Executing that responsibility requires tens of thousands of bank employees and countless man-hours. But cryptocurrencies and stablecoins are increasingly becoming the coin of the realm for money launderers and terrorist financers. And unlike banks, crypto companies do not have the same obligations under current law to protect the financial system from those abusing it. Congress has an opportunity to fix this disparity via market structure legislation, and it is imperative that it seize this opportunity to protect crucial U.S. national security interests.
According to Chainalysis’s 2026 Annual Report, illicit crypto addresses received $154 billion in 2025, a 162 percent increase year-over-year, primarily driven by a 694 percent increase in the value received by sanctioned entities.
Those numbers reflect a worrying trend. As the report explains, “The on-chain money laundering ecosystem — a portion of the overall illicit crypto ecosystem that reflects the laundering of funds rather than the underlying inflows associated with illicit activity — has grown dramatically in recent years, increasing from $10 billion in 2020 to over $82 billion in 2025.”[1] Crypto is funding the worst crimes: “The intersection of cryptocurrency and suspected human trafficking intensified in 2025, with total transaction volume reaching hundreds of millions of dollars across identified services, an 85% year-over-year increase.”[2] Crypto also continues to fund fraud and exploitation schemes. The FBI’s 2025 Internet Crime Report notes that the agency’s Internet Crime Complaint Center received 181,565 complaints last year with a nexus to crypto, an increase of 21 percent from 2024, totaling $11.366 billion in losses, an increase of 22 percent.[3]
Not only does the use of crypto and stablecoins by criminals continue to rise, but hostile nation-states are embracing these “currencies.” China is front and center in every aspect of this ugly business – from illicit sales of fentanyl to scams against ordinary Americans. Chinese-language money laundering networks now account for 20 percent of known on-chain illicit money laundering activity.
Ari Redbord, the Global Head of Policy at TRM Labs, reaffirmed these unfortunate trends in a recent House Homeland Security Hearing (Online Scams, Crypto Fraud, and Digital Extortion: An Examination of How Transnational Criminal Networks Target Americans), warning:
The numbers underscore the urgency. TRM’s 2026 crypto crime report documented $158 billion in illicit crypto flows in 2025 — that’s a 145 percent increase over 2024. Fraud and scams alone drove $35 billion, and with only about 15 percent of victims reporting, true global losses exceed $200 billion. These flows run through one interconnected ecosystem. Pig butchering compounds in Southeast Asia, many staffed by trafficked workers, generate fraud proceeds. Mexican cartels buy fentanyl precursors from Chinese suppliers with cryptocurrency. North Korea stole about $2 billion in cryptocurrency last year to fund weapons proliferation and destabilizing activity. Every one of those streams moves through the same plumbing — Chinese underground banking networks that processed over $103 billion last year alone.
China is far from alone in leveraging crypto. The Islamic Republican Guard Corps’ on-chain activity has been growing steadily, and represented approximately 50 percent of Iran’s total crypto ecosystem by Q4 2025. The volume of funds received by IRGC-associated addresses reached over $2 billion in 2024 and spiked to more than $3 billion in 2025 – and even this estimate likely understates the actual figure, as it excludes volumes from entities such as the UK-registered exchanges Zedcex and Zedxion, which were not designated as U.S.-sanctioned firms until January 2026. The U.S. Treasury revealed that those exchanges had processed tens of billions of dollars’ worth of transactions tied to Iran-aligned actors. This is also the payment method of choice for Iran, which has been demanding payment in Bitcoin or stablecoins for transit through the Strait of Hormuz. In short, crypto significantly diminishes the power of economic sanctions, thwarting the geopolitical goals motivating their imposition in the first place.
Stablecoins – most notably, Tether, a stablecoin issuer based in El Salvador – have come to dominate the landscape of illicit transactions, and now reportedly account for 84 percent of all illicit transaction volume, unseating Bitcoin as criminals’ and terrorists’ asset of choice. While the 2025 GENIUS Act imposes some anti-money laundering (AML) obligations on U.S. stablecoin issuers, that law does not apply extraterritorially. And it remains to be seen how that requirement will be implemented and enforced. Past history is not encouraging: for example, in 2023, the New York Department of Financial Services – but not any federal regulator – imposed a $100 million fine on Coinbase for failures in its AML program.
Banks can’t see inside the exchanges facilitating crypto trading and neither can governments, as these exchanges are not subject to bank-like reporting and examination. What we do know is that senior compliance officials at Binance – those responsible for sanctions, investigations and financial crime monitoring – are fleeing the exchange.[4] Whether motivated by morality or fear of prosecution, their departure sends a clear signal that crypto-related entities are vulnerable to money laundering and terrorist financing. By contrast, banks remain as ever subject to intensive AML/CFT regulation and examination.
We are encouraged by Treasury’s recent Notice of Proposed Rulemaking for AML and Sanctions obligations that seem to impose obligations on stablecoin issuers akin to those applicable to banks. A similar approach should be adopted with other entities serving as intermediaries in the crypto space, such as exchanges and certain wallet providers. Unless all market players have the same obligations, criminals will continue to operate undetected in the crypto ecosystem.
Remarkably, crypto lobbyists continue to argue that transactions on-chain can be tracked and thus are more conducive to AML monitoring and enforcement than transactions at banks. Given the numbers above, it is a classic case of “Who are you going to believe, me or your own eyes?” A theoretical ability to track transactions does not mean a reality-based one. Bad actors use unhosted wallets, cross-chain bridges, as well as mixers and tumblers – which are specifically designed to frustrate tracing and openly advertised as such. Evasion is a feature, not a bug: as the original Bitcoin whitepaper by the pseudonymous “Satoshi Nakamoto” stated, “The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone.”
On cue, last week, suspected North Korea-linked crypto hackers stole $280 million from major DeFi (decentralized finance) platforms, primarily Aave. The hackers were able to trick a crypto intermediary – a cross-chain bridge – into minting unbacked cryptocurrency, sending it to a wallet that had been funded just 10 hours prior, and using that fake crypto as collateral to extract real liquidity from Aave. The identity of the wallet holder was obscured by Tornado Cash, a well-known crypto “mixer.”
In the United States, crypto firms argue that they need loose rules to compete internationally, and that some regulation is better than no regulation. But the right answer is not a race to the bottom; the right answer is for all market players to be subject to the same obligations. More immediately, Congress is currently debating legislation that could extend AML obligations to all “digital asset service providers” covered by the GENIUS Act, including exchanges and custodial wallet providers, not just a narrow subset of actors.
Some in Congress have gotten the message.
At the aforementioned House Homeland Security hearing, Rep. Michael Guest asserted:
Criminal networks use the digital domain to promote their illicit activities. The challenging nature of tracing cryptocurrency provides a landscape where Mexican drug cartels and other criminal organizations can launder money by converting profits from illegal activities into digital currency, which can be accessed across the world in a matter of seconds through this digital marketplace. The Mexican cartels are utilizing Chinese money laundering networks as a piece of their business models.
Eventually – hopefully sooner rather than later – policymakers must make a decision: they can abandon the current regime where only certain financial institutions have consistent obligations to flag suspicious activity for law enforcement, or they can extend that regime to all financial market players as the ecosystem evolves, including the new crypto-related entities entering the market.
What makes no sense is continuing to apply intensive AML and sanctions regulation and examination to banks when the worst and most sophisticated actors know they can launder money and avoid sanctions by transferring money to an unhosted wallet, do a little mixing and transact freely in the crypto-verse. The statistics show the criminals have already figured out this loophole; the question is whether Washington will close it.
[1] Chainalysis 2026 Crypto Crime Report at 7, The 2026 Crypto Crime Report
[2] Chainalysis 2026 Crypto Crime Report at 39.
[3] Federal Bureau of Investigation Internet Crime Report 2025, at pg. 52, 2025_IC3Report.pdf
[4] See https://www.amlintelligence.com/2026/04/news-senior-compliance-staff-exit-binance-amid-iran-scrutiny/ and https://www.bloomberg.com/news/articles/2026-04-06/binance-compliance-staff-leave-financial-crime-monitoring-roles.
