“Stablecoins” Vulnerable to Criminal Abuse, Financial Action Task Force Says

The Financial Action Task Force (“FATF”) recently published its report to the G-20 finance ministers on so-called “stablecoins,” “a type of digital currency that aims to maintain a stable value relative to that of an underlying asset or benchmark.”  The FATF is an inter-governmental body that sets international standards that aim to prevent global money laundering and terrorist financing.  

In June 2019, the FATF revised its standards to require virtual asset service providers to implement the full range of preventive measures against money laundering and terrorist financing.  Shortly thereafter, in October 2019, the G20 asked the FATF to consider the money laundering and terrorist financing issues related to stablecoins.  

While the FATF explains that so far, stablecoins have been adopted only on a small-scale, “new proposals have the potential to be mass-adopted on a global scale, particularly where they are sponsored by large technology, telecommunications or financial firms.”  Stablecoins are subject to the same money-laundering and terrorist-financing risks as some other virtual assets, due to their potential for anonymity, global reach, and layering of illicit funds.  Mass adoption heightens these vulnerabilities.

To mitigate these risks, the FATF’s report proposed, inter alia, that all jurisdictions adopt its revised standards on virtual assets and virtual asset service providers.  The FATF also plans to review the implementation and impact of its revised standards by June 2021 to consider whether further updates are necessary.