Illicit financial activity involving stablecoins reached highs, with $141 billion flowing to illicit entities, according to a new report from blockchain analytics firm TRM Labs. While representing less than 0.5% of overall stablecoin transaction volume, the surge underscores the growing appeal of these digital assets to those seeking to evade sanctions and launder funds.
The report, released on , reveals that 86% of illicit crypto flows in were linked to sanctions-related activity, with stablecoin platforms serving as the primary conduit. This trend is particularly notable given the overall expansion of the stablecoin market, which saw monthly transfers exceeding $1 trillion on multiple occasions last year.
A significant portion – $72 billion – of the illicit flows was traced to the A7A5 token, a ruble-pegged stablecoin operating within networks subject to U.S. Sanctions. This concentration raises concerns about the potential for stablecoins to facilitate the circumvention of international financial restrictions.
Oleg Ogienko, Director for Regulatory and Overseas Affairs at A7A5, disputed the findings, asserting that TRM Labs incorrectly characterizes Russian external trade as illicit. In a recent interview at Consensus Hong Kong , Ogienko further defended the company’s compliance, stating, “We are fully compliant with the regulations of Kyrgyzstan. We do not do illegal things,” and emphasizing the presence of Know Your Customer (KYC) and Anti-Money Laundering (AML) mechanisms within their infrastructure. He also expressed a willingness to debate anyone who questions the company’s adherence to Financial Action Task Force (FATF) principles.
However, A7A5’s issuing entity, Old Vector LLC, and its affiliated company, A7 LLC, along with Promsvyazbank (PSB), which holds the token’s reserves, are currently sanctioned by the U.S. Department of the Treasury. These sanctions effectively bar U.S. Dollar-denominated financial institutions from interacting with the entities, creating a complex legal and operational landscape.
The increasing use of stablecoins for illicit purposes is not a new phenomenon, but the scale observed in is particularly striking. According to a report from Forbes published in , stablecoins now account for 63% of all criminal transaction volume, a significant shift from previous reliance on Bitcoin.
Despite the rise in illicit activity, data suggests that the vast majority of stablecoin transactions remain legitimate. TRM Labs reported that over 99% of stablecoin volume in was linked to licit uses, including participation in Decentralized Finance (DeFi), e-commerce payments, and cross-border remittances. This highlights the dual nature of stablecoins – a powerful tool for legitimate financial innovation, but also a potential vulnerability in the global financial system.
The Financial Action Task Force (FATF) has identified stablecoins as a major risk in illicit use, a finding echoed in a Targeted Update. This increased scrutiny is likely to fuel further regulatory efforts aimed at mitigating the risks associated with stablecoins, including the recently passed GENIUS Act in the U.S. Senate.
The concentration of illicit flows within a single ruble-pegged stablecoin, A7A5, is particularly noteworthy. This suggests that sanctioned entities are actively seeking alternative financial channels, and that stablecoins are proving effective in facilitating these efforts. The company’s insistence on its compliance, despite being linked to sanctioned entities, underscores the challenges regulators face in monitoring and enforcing sanctions in the rapidly evolving digital asset space.
While the overall volume of illicit transactions remains a small fraction of the total stablecoin market, the trend is concerning. The ease of use, price stability, and increasing accessibility of stablecoins make them an attractive option for those seeking to move funds quickly and discreetly, potentially undermining international efforts to combat financial crime and enforce sanctions. The continued growth of the stablecoin market, coupled with the evolving tactics of illicit actors, will likely necessitate ongoing vigilance and adaptation from regulators and law enforcement agencies.
The $35 trillion in stablecoin volume recorded in , as reported by CoinDesk, demonstrates the significant role these assets now play in the global financial landscape. Balancing the benefits of innovation with the need to prevent illicit use will be a key challenge for policymakers in the years to come.
