BIS Bulletin No 111
Cryptoassets on permissionless public blockchains have grown rapidly and are increasingly intertwined with traditional finance. Alongside this growth, concerns about illicit activity have risen sharply—particularly involving stablecoins, which since 2022 have overtaken bitcoin as the preferred vehicle for criminal transactions. By 2024, stablecoins accounted for around 63% of illicit crypto flows. As connections between the crypto ecosystem and the conventional financial system deepen, ensuring the integrity of payments and guarding against money laundering has become more urgent.
Traditional anti-money laundering (AML) frameworks rely on regulated intermediaries, such as banks, to perform customer checks during transactions. Applying these rules to cryptoassets is challenging because permissionless blockchains operate without central intermediaries. While compliance checks can occur at exchanges when funds enter or exit the crypto system, once assets move to unhosted wallets, they fall outside the reach of conventional oversight. Stablecoin issuers have occasionally frozen illicit funds at authorities’ request, but this is impractical for the vast volume of everyday transactions.
The Bulletin suggests using blockchain’s transparency to improve AML controls by assigning an “AML compliance score” to crypto units based on their transaction history. Authorities could use these scores to guide interventions at “off-ramps” where crypto is converted to fiat. Jurisdictions could adapt criteria to local regulations, including foreign exchange rules, helping to safeguard monetary sovereignty, bolster policy effectiveness, and redefine the division of responsibility between users and regulators.
