FATF says gaps in crypto rules and Travel Rule adoption still enable illicit finance

Progress, but not full coverage

The report presents a mixed picture. According to FATF, most jurisdictions are moving ahead with rules for virtual assets and with Travel Rule requirements, which are intended to improve the transfer of information in crypto transactions. But the organization said progress remains incomplete, and that the remaining weak spots matter because criminal entities can take advantage of them.

FATF said regulation, licensing and registration of virtual asset service providers, or VASPs, are still essential steps for closing those loopholes. Its warning suggests that partial adoption is not enough when illicit networks can shift activity across borders and toward less regulated venues.

Offshore firms in weak regimes

A central concern in the update is the role of offshore VASPs registered in jurisdictions where crypto oversight is weak or still underdeveloped. FATF said such entities pose a challenge for risk mitigation, because they can operate from places where controls are limited while reaching users and counterparties elsewhere.

That cross-border structure, the watchdog indicated, can undermine efforts by stronger-regulated jurisdictions if other parts of the system remain vulnerable. The report therefore frames implementation as a global coordination problem, not simply a domestic compliance issue.

Stablecoin misuse highlighted

FATF also drew attention to the misuse of stablecoins. As an example, it cited a Cambodia-based money-laundering node that issued a stablecoin marketed as being immune to asset freezing. The inclusion of that case in the update underlines the agency’s concern that products presented as stable or technically resilient can also be positioned in ways that appeal to illicit operators.

The report does not present stablecoins as inherently unlawful, but it does identify their misuse as an area requiring closer preventive controls. In FATF’s view, new token models and cross-border distribution can create additional enforcement challenges when regulation is uneven.

Call for faster implementation

FATF President Giles Thomson said implementation cannot be delayed, arguing that criminal networks continue to abuse virtual assets for illicit purposes. He said those networks exploit the borderless nature of crypto to commit fraud, evade sanctions and launder proceeds.

The update calls on governments and the private sector to strengthen preventive measures, close regulatory gaps and improve cross-border cooperation. FATF’s message is that weak links in one jurisdiction can have wider consequences, particularly when offshore providers and transferable digital assets can move activity beyond the reach of fragmented oversight.

The latest review continues FATF’s broader push to bring virtual asset markets under anti-money laundering standards comparable to those applied in other parts of finance. While the organization said many jurisdictions have advanced their frameworks, it warned that incomplete adoption is still giving criminals room to operate.