Sweeping regulatory change has arrived in the world of digital finance as the United States formally enacted the Guiding and Establishing National Innovation for US Stablecoins Act, or GENIUS Act. This move establishes a comprehensive federal regime for the issuance, management, and oversight of stablecoins. The implications for financial crime—especially money laundering and terrorism financing—are significant and immediate.

Stablecoins, digital tokens pegged to fiat currencies like the US dollar, have exploded in popularity, powering everything from cross-border payments to decentralized finance (DeFi). While the technology offers undeniable benefits for speed and accessibility, the opaque nature of digital asset markets has fueled longstanding concerns about illicit finance. With the signing of the GENIUS Act into law, the United States is making a definitive statement: stablecoins will not become safe havens for laundered money or terrorism financing.

This article explores the GENIUS Act’s regulatory structure and analyzes its potential to disrupt criminal misuse of digital assets, while also examining risks and gaps that may persist.

GENIUS Act Ushers in Rigorous Stablecoin Regulation

The GENIUS Act marks the first comprehensive federal regulation of stablecoins in the US. At its core, the law mandates that all stablecoin issuers maintain full (100 percent) reserve backing with highly liquid assets—primarily US dollars or short-term US Treasury securities. Issuers must provide monthly public disclosures detailing the composition of their reserves, a significant departure from the largely self-attested or opaque disclosures that previously characterized the industry.

For money laundering and terrorism financing risk, these reserve requirements are not just about consumer confidence. They fundamentally limit opportunities for issuers to engage in shadow banking or to launder illicit proceeds through deceptive stablecoin issuance. By requiring that all circulating stablecoins are backed by verifiable and liquid assets, the Act introduces a level of transparency that makes it considerably more difficult for bad actors to move dirty money undetected.

In parallel, the GENIUS Act subjects all stablecoin issuers to the full scope of the US Bank Secrecy Act (BSA). Issuers are now legally required to implement robust anti-money laundering (AML) and sanctions compliance programs. This means real risk assessments, customer due diligence, transaction monitoring, and reporting of suspicious activities to the Financial Crimes Enforcement Network (FinCEN). The law also enhances the Treasury Department’s authority to enforce compliance and sanction violations, filling what had been a critical enforcement gap in the US digital asset ecosystem.

GENIUS Act’s Impact on Money Laundering and Terrorism Financing

The GENIUS Act’s new legal and compliance obligations for stablecoin issuers signal a paradigm shift for AML in the digital asset sector. The most salient impacts include:

1. Enhanced Transparency and Traceability
Stablecoin issuers must publicly report reserve holdings and provide regulators with access to information about customer identities and transaction flows. This level of transparency makes it harder for criminals to create or use stablecoins for layering illicit funds. Routine and on-demand disclosures empower regulators to trace the origins and destinations of suspicious funds—capabilities that were previously lacking in the sector.

2. Application of Bank Secrecy Act Standards
Bringing stablecoin issuers under the Bank Secrecy Act’s umbrella means the same AML expectations apply as those imposed on traditional banks and money services businesses. Issuers must conduct ongoing customer identification, screen against Office of Foreign Assets Control (OFAC) sanctions lists, and file suspicious activity reports (SARs). These tools are essential for identifying not only domestic criminal activity, but also cross-border terrorism financing.

3. Prohibitions on Deceptive Practices
The Act explicitly forbids stablecoin issuers from misrepresenting their tokens as being federally insured, legal tender, or backed by the US government. This curbs one of the classic routes for financial fraud, where criminals rely on misleading claims to draw in victims or disguise illegal activity as legitimate financial transactions.

4. Consistent Federal Oversight
Prior to the GENIUS Act, stablecoin oversight in the US was fragmented, with different states implementing divergent rules and enforcement practices. The Act harmonizes these approaches, creating a national framework that leaves fewer regulatory cracks for criminals to exploit.

5. Priority for Consumer Protection in Insolvency
In the event a stablecoin issuer fails, holders of stablecoins are prioritized over other creditors. This ensures that end-users—often the first to lose out in financial crime schemes—are better protected.

By mandating these new compliance requirements, the US is making it clear that digital assets must play by the same rules as the rest of the financial system when it comes to anti-money laundering and counter-terrorism financing.

Remaining Risks and Emerging Threats Under Stablecoin Regulation

While the GENIUS Act closes many loopholes, it cannot fully eradicate the risks of money laundering or terrorism financing through stablecoins and digital assets. Some vulnerabilities remain:

1. Implementation Gaps and Regulatory Arbitrage
The law’s success hinges on effective implementation and coordination among federal agencies, state regulators, and international partners. If enforcement is inconsistent or delayed, criminals may continue to exploit regulatory gaps. Additionally, illicit actors could shift their activities to foreign stablecoin issuers or decentralized platforms outside US jurisdiction, seeking out more permissive environments.

2. Technological Sophistication of Laundering Methods
Money launderers are adept at exploiting any weakness in financial infrastructure. Even with improved oversight, they may use complex transaction layering, mixing services, privacy coins, or synthetic assets to obfuscate fund origins. The rise of cross-chain interoperability—where digital assets move fluidly between different blockchains—adds further complexity to tracing illicit funds.

3. Use of Decentralized Finance and Non-Custodial Wallets
Decentralized finance (DeFi) platforms and non-custodial wallets can allow users to transact in stablecoins without going through regulated entities. Unless additional measures are taken to address DeFi’s role in illicit finance, money launderers and terrorists may still find avenues to operate anonymously.

4. Cross-Border Transactions and Foreign Regulatory Divergence
The US may set a gold standard for stablecoin oversight, but unless there is global convergence around similar rules, bad actors could exploit discrepancies between national regulatory regimes. Countries with less stringent AML requirements may attract illicit activity or serve as gateways for funds to re-enter the US market.

5. Delayed Effective Date and Transition Risks
The GENIUS Act’s provisions will not take effect until either January 2027 or four months after federal regulators publish implementing regulations, whichever comes first. This transition period could create a temporary window for money laundering and terrorism financing activity before the full weight of compliance is enforced.

Comparing the US Approach With Global Stablecoin Regulation

The United States is not the first jurisdiction to introduce comprehensive stablecoin regulation. The European Union’s Markets in Crypto-Assets Regulation (MiCA) became fully applicable in December 2024, introducing a similar regime of full reserve backing, disclosure, and licensing for stablecoin issuers. The UK, meanwhile, is advancing its own proposals for stablecoin oversight.

Where the GENIUS Act distinguishes itself is in the direct and detailed application of Bank Secrecy Act requirements, paired with tough new obligations for transparency and consumer protection. This positions the US as a leading voice in shaping global norms on digital asset compliance, but also places pressure on other jurisdictions to match its standards or risk becoming regulatory havens for illicit actors.

Of note, some US states have attempted to innovate with their own digital currency initiatives, such as Wyoming’s move to issue a public sector stablecoin. The interplay between state-led digital asset experimentation and federal law will remain an area to watch, with potential implications for enforcement and money laundering risk.

Strategic Implications for Financial Institutions and AML Professionals

For compliance teams, the GENIUS Act’s passage represents a major operational challenge and an opportunity to reset AML programs in the digital asset space. Key priorities include:

• Integrating real-time monitoring and analytics to detect suspicious activity in stablecoin flows
• Conducting enhanced due diligence on customers involved in digital asset activities
• Aligning risk assessments and transaction screening with evolving federal guidance
• Collaborating with law enforcement, regulators, and industry peers to identify new laundering techniques
• Preparing for audits and regulatory reviews that will increasingly focus on digital asset compliance

Financial institutions and virtual asset service providers that fail to keep pace risk regulatory penalties and reputational damage, but those that adapt early may find new business opportunities as trusted partners in the digital economy.

Conclusion: GENIUS Act Raises the Bar for AML in Digital Assets

The GENIUS Act is a watershed moment for the regulation of stablecoins and the broader fight against money laundering and terrorism financing in digital assets. By imposing strict reserve requirements, public transparency, and Bank Secrecy Act compliance, the US is laying down a marker for how digital finance must operate within the rule of law.

While risks remain and illicit actors will continue to innovate, the GENIUS Act shifts the balance in favor of legitimate finance and consumer protection. Its success will depend on effective implementation, vigilant enforcement, and coordination across borders and sectors. For AML professionals, this new landscape offers both complexity and a clear mandate to adapt.

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Related Links

• Official text of the GENIUS Act (US Congress)
• Bank Secrecy Act – US Department of the Treasury
• FinCEN Guidance on Virtual Currencies
• Markets in Crypto-Assets Regulation (MiCA) – European Commission
• FATF Guidance for a Risk-Based Approach to Virtual Assets and VASPs

Other FinCrime Central Articles Highlighting Different Views On Stablecoins

• US Crypto Week Ignites Money Laundering Fears Across Europe and Asia
• ESMA Clarifies Stablecoin Custody and Transfer Rules under MiCA Regulation
• FINMA Flags Stablecoins as High-Risk for Money Laundering

Source: Global Government Fintech, by Ian Hall

Some of FinCrime Central’s articles may have been enriched or edited with the help of AI tools. It may contain unintentional errors.

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