By Clara Kim, Greg Baer, and Paige Pidano Paridon; Bank Policy Institute
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For decades, our government has counted primarily on the nation’s banks to identify suspicious activity and assist law enforcement and national security agencies in fighting criminals and terrorists. Executing that responsibility requires tens of thousands of bank employees and countless man-hours.
But cryptocurrencies and stablecoins are increasingly becoming the coin of the realm for money launderers and terrorist financers. And unlike banks, crypto companies do not have the same obligations under current law to protect the financial system from those abusing it. Congress has an opportunity to fix this disparity via market structure legislation, and it is imperative that it seize this opportunity to protect crucial U.S. national security interests.
According to Chainalysis’s 2026 Annual Report, illicit crypto addresses received $154 billion in 2025, a 162 percent increase year-over-year, primarily driven by a 694 percent increase in the value received by sanctioned entities.
Those numbers reflect a worrying trend. As the report explains, “The on-chain money laundering ecosystem — a portion of the overall illicit crypto ecosystem that reflects the laundering of funds rather than the underlying inflows associated with illicit activity — has grown dramatically in recent years, increasing from $10 billion in 2020 to over $82 billion in 2025.” Crypto is funding the worst crimes: “The intersection of cryptocurrency and suspected human trafficking intensified in 2025, with total transaction volume reaching hundreds of millions of dollars across identified services, an 85% year-over-year increase.” Crypto also continues to fund fraud and exploitation schemes. The FBI’s 2025 Internet Crime Report notes that the agency’s Internet Crime Complaint Center received 181,565 complaints last year with a nexus to crypto, an increase of 21 percent from 2024, totaling $11.366 billion in losses, an increase of 22 percent.
Not only does the use of crypto and stablecoins by criminals continue to rise, but hostile nation-states are embracing these “currencies.” China is front and center in every aspect of this ugly business – from illicit sales of fentanyl to scams against ordinary Americans. Chinese-language money laundering networks now account for 20 percent of known on-chain illicit money laundering activity.
Ari Redbord, the Global Head of Policy at TRM Labs, reaffirmed these unfortunate trends in a recent House Homeland Security Hearing (Online Scams, Crypto Fraud, and Digital Extortion: An Examination of How Transnational Criminal Networks Target Americans), warning:
The numbers underscore the urgency. TRM’s 2026 crypto crime report documented $158 billion in illicit crypto flows in 2025 — that’s a 145 percent increase over 2024. Fraud and scams alone drove $35 billion, and with only about 15 percent of victims reporting, true global losses exceed $200 billion. These flows run through one interconnected ecosystem. Pig butchering compounds in Southeast Asia, many staffed by trafficked workers, generate fraud proceeds. Mexican cartels buy fentanyl precursors from Chinese suppliers with cryptocurrency. North Korea stole about $2 billion in cryptocurrency last year to fund weapons proliferation and destabilizing activity. Every one of those streams moves through the same plumbing — Chinese underground banking networks that processed over $103 billion last year alone.
China is far from alone in leveraging crypto. The Islamic Republican Guard Corps’ on-chain activity has been growing steadily, and represented approximately 50 percent of Iran’s total crypto ecosystem by Q4 2025. The volume of funds received by IRGC-associated addresses reached over $2 billion in 2024 and spiked to more than $3 billion in 2025 – and even this estimate likely understates the actual figure, as it excludes volumes from entities such as the UK-registered exchanges Zedcex and Zedxion, which were not designated as U.S.-sanctioned firms until January 2026. The U.S. Treasury revealed that those exchanges had processed tens of billions of dollars’ worth of transactions tied to Iran-aligned actors. This is also the payment method of choice for Iran, which has been demanding payment in Bitcoin or stablecoins for transit through the Strait of Hormuz. In short, crypto significantly diminishes the power of economic sanctions, thwarting the geopolitical goals motivating their imposition in the first place.