Law enforcement agencies are being warned to expect more cases involving stablecoins and other digital assets, according to a FinTRAC report. The document, titled “Trends in Large Virtual Currency Transaction Reports and Money Laundering/Terrorist Financing Implications,” was prepared by Canada’s financial intelligence unit in March 2024. The rapid rise of stablecoins has raised concerns about their role in financial crime. FinTRAC’s findings are based on a quantitative and qualitative analysis of Large Virtual Currency Transaction Reports.
Regulated businesses must submit LVCTRs to FinTRAC when they receive virtual currency valued at $10,000 or more in a single transaction, or in two or more transactions within 24 hours. Those reports encompassed 953,295 virtual currency transactions totalling $14.7-billion from 118 businesses, according to the analysis. USDT, a stablecoin issued by Tether that is pegged to the U.S. dollar, accounted for the largest share of total transaction value, amounting to $5.2-billion over the roughly two years. Another stablecoin tied to the U.S. greenback, issued by Circle and known as USD Coin or USDC, generated the third-largest total transaction value during that same period – roughly $2.1-billion, according to the FinTRAC report.
That burst of activity means stablecoins are “increasingly prominent in money laundering cases,” even if many of those digital assets have features to “reverse transactions” and seize funds tainted by crime. A U.S. indictment alleging that former Canadian Olympic snowboarder Ryan Wedding and his accomplices made extensive use of cryptocurrencies, including the stablecoin Tether, to launder the proceeds of drug trafficking is a timely reminder of how suspected criminals could abuse digital currencies. Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act was updated in 2020 to ensure money-services businesses that deal in virtual currencies register with FinTRAC. That means ensuring that foreign stablecoin issuers, such as Tether, cannot participate in any centralized or decentralized exchanges or peer-to-peer transfers without robust regulatory oversight.
Canada must also make certain that secondary-market participants, including digital asset exchanges, custodians and brokers, all have reporting obligations under the updated act. The Carney government should also offer assurances that anonymizing technologies, such as mixers and other intermediaries that obscure funding sources, are captured by existing and proposed legislation. Canada should consider bolstering client due diligence for stablecoin issuers. Financial criminals are salivating about potential profits, too.
A final report is expected next June. The Financial Action Task Force, a global body that sets standards to combat money laundering and terrorist financing, has flagged several characteristics of stablecoins that create such risks. “These include: anonymity through the use of unhosted wallets, global reach, price stability, which allows actors to layer the proceeds of crime derived from more volatile virtual assets such as Bitcoin or Ether,” the FinTRAC report says. The FATF is currently reviewing Canada’s anti-money-laundering regime, with a final report expected next June.
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