FATF's 2025 Update Reveals Mounting Global Risks of Money Laundering via Virtual Assets

Money laundering through virtual assets has rapidly escalated into a dominant concern for anti-financial crime experts, policymakers, and regulators worldwide. The Financial Action Task Force’s (FATF) sixth targeted update, published in June 2025, marks a critical inflection point in the international response to illicit finance in the digital asset ecosystem. As criminals increasingly leverage the borderless, anonymous features of cryptocurrencies, stablecoins, and decentralized finance (DeFi), FATF’s findings present a picture of both meaningful progress and serious systemic vulnerabilities. This article dissects the global compliance landscape, the key areas of exposure, and the urgent reforms needed to counter illicit finance threats posed by virtual assets.

Virtual assets—including cryptocurrencies, stablecoins, and tokenized forms of value—have become deeply embedded in the global financial architecture, presenting a suite of new challenges to AML frameworks. According to FATF, despite some advancements since 2019, global regulatory regimes remain incomplete, and illicit actors are exploiting these gaps with growing sophistication. Virtual assets now feature prominently in cross-border criminal finance, enabling money laundering, sanctions evasion, and terrorism financing with unprecedented speed and discretion.

The FATF report emphasizes that the anonymous, rapid transmission of value across national borders continues to frustrate traditional AML/CFT controls. While Recommendation 15 and its updated 2019 interpretative guidance established clear obligations for countries to regulate virtual assets and their service providers, many governments have yet to fully implement or enforce these standards. FATF’s latest findings show that although 99 jurisdictions have enacted legislation to support the so-called “Travel Rule”—which mandates the exchange of sender and recipient identifying data with every cross-border crypto transaction—actual enforcement remains inconsistent. Many authorities still lack the infrastructure, resources, or authority to properly supervise or compel compliance.

Criminal groups, sanctioned entities, drug cartels, and terrorist organizations are all taking advantage of these weaknesses. In particular, the misuse of stablecoins has grown dramatically, with FATF noting that these fiat-pegged tokens now account for the majority of on-chain illicit finance activity. “These vulnerabilities, if unaddressed, risk undermining broader AML/CFT frameworks and may facilitate new forms of organized crime,” the FATF warns. The digital asset sector’s uneven regulatory coverage and decentralized nature have allowed bad actors to exploit weak points at scale.

Compounding the issue is the problem of regulatory arbitrage. The report stresses that while numerous countries have moved to regulate virtual asset service providers (VASPs), many of these entities have simply relocated to jurisdictions with looser AML rules—or operated without clear oversight altogether. The risk to the global financial system is acute. FATF reports widespread difficulty among jurisdictions in identifying beneficial ownership and tracing VASP activity, particularly in the context of DeFi, where pseudonymity and complex layering obscure the real-world identities behind transactions.

The challenge of asset recovery looms large. High-profile heists such as the $1.46 billion theft from the ByBit exchange, attributed to DPRK-linked actors, highlight just how ineffective current recovery mechanisms can be. Despite international attention, only a negligible portion of the stolen funds have been retrieved. FATF cites “deficiencies in cross-border cooperation, tracing, freezing, and confiscation” as major impediments to effective enforcement. These structural weaknesses allow criminals to dissipate funds rapidly through multiple anonymous wallets, rendering traditional legal and investigative tools ineffective.

Meanwhile, many countries continue to struggle with the implementation of risk-based compliance approaches. FATF notes that public and private actors alike often fail to recognize or anticipate evolving risk typologies. Technologies like non-custodial wallets, privacy coins, and decentralized exchanges are advancing faster than regulators can respond. “Technological advances… outpace regulatory and supervisory adaptation,” the FATF states, creating blind spots that are readily exploited by those engaged in financial crime.

Another emerging theme in FATF’s 2025 findings is the professionalization of fraud networks. In 2024 alone, an estimated $51 billion in illicit on-chain activity was attributed to fraud and scams. The rise of industrial-scale phishing operations, social engineering schemes, ransomware, and bogus investment platforms has been a game-changer. Investigations such as the UK’s Operation Destabilise have uncovered sprawling networks behind these scams, but the ability to freeze and recover assets before they vanish remains limited. Once again, the rapid and borderless nature of digital assets stymies timely enforcement.

Stablecoins, widely marketed as safer and more stable than volatile cryptocurrencies, have emerged as preferred instruments for illicit activity. FATF’s analysis shows that their liquidity and ease of use make them ideal for storing and moving criminal proceeds. Without globally harmonized and enforceable regulations, the widespread adoption of stablecoins could further amplify systemic risks.

The sophistication of laundering techniques has also advanced. Criminal organizations now actively invest in bypassing onboarding controls, masking origins of funds, and identifying weak AML jurisdictions to base operations. “Even with regulatory advances, law enforcement and compliance teams must remain vigilant and agile,” FATF warns. Detecting and disrupting these new typologies requires constant innovation, data sharing, and proactive threat assessments.

To address these challenges, the FATF urges renewed international cooperation and the adoption of supervisory best practices. A key recommendation is full implementation and enforcement of the Travel Rule. Beyond transmitting basic sender/recipient data, VASPs must develop the technical capacity to screen for sanctions risks and unusual behavior in real-time. Regulators, in turn, must be equipped to audit VASP compliance rigorously and apply meaningful sanctions where needed.

Cross-border asset recovery mechanisms also need to be strengthened. FATF calls on jurisdictions to improve information-sharing protocols, mutual legal assistance frameworks, and coordinated asset freezing tools. Traditional legal timelines are too slow for the rapid pace of virtual asset transfers, meaning authorities must adopt faster, more agile legal tools and operational capabilities.

The FATF highlights the increasingly vital role of public-private partnerships. Tech companies like Chainalysis, Lukka Inc., Merkle Science, and TRM Labs are now indispensable to enforcement efforts. Their forensic tools help trace illicit flows, analyze network behavior, and generate actionable intelligence. Joint investigations and typology sharing initiatives between regulators, law enforcement, and private actors have become central to the modern fight against virtual asset-based crime.

The 2025 update leaves no room for complacency. “The global AML regime remains exposed to significant money laundering risks stemming from gaps in supervision, enforcement, and international cooperation,” the FATF concludes. With innovation continuing to outstrip regulation, the opportunity for abuse remains significant.

Moving forward, governments must close the implementation gap, ensure all VASPs are brought under oversight, and prioritize swift action on enforcement and asset recovery. The industry must also step up—deploying cutting-edge compliance technology, enhancing due diligence frameworks, and adapting quickly to new criminal tactics.

Money laundering through virtual assets is not just a technical problem—it is a dynamic, global threat to the integrity of the financial system. Defeating it will require a united response that combines legal rigor, technological sophistication, and seamless international cooperation. Only by closing loopholes and staying ahead of innovation can the global financial sector withstand the mounting pressure from this fast-evolving criminal frontier.

By fLEXI tEAM