‘Cash to Crypto Swaps’ Use Stablecoins to Bypass Bank Security

Criminals are reportedly turning to stablecoins hide wealth from their illicit activities.

That’s according to a report Sunday (Dec. 7) by The New York Times (NYT). The newspaper said it analyzed corporate filings, blockchain data and online forum messages to determine that stablecoins are often returned to the banking system by converting funds into debit cards.

“These ‘cash to crypto’ swaps are an integral part of a global criminal ecosystem,” Sal Melki, deputy director for economic crime at the U.K.’s National Crime Agency, told NYT.

As the report noted, the U.S. Treasury Department has for decades counted on banks and credit card companies to ferret out illegal financial activity, requiring them to spend billions on compliance efforts or face major fines. Stablecoins, however, bypass this system completely, NYT said.

To determine how easily crypto can evade banking rules, NYT reporter Aaron Krolik writes that he found a crypto ATM, deposited two $20 bills, and was soon converting the crypto that landed in his digital wallet into a Visa payment card number.

This card, which operated like a debit card, did not require him to give his address or any sort of identity check, basically offering him a layer of anonymity for his spending.

“My experiment was perfectly legal, despite anti-money-laundering laws in the United States that require banks to scrutinize the identity of an account holder and the source of funds before issuing credit, debit and payment cards,” Krolik wrote.

The news comes months after findings from the Financial Action Task Force (FATF) which showed that the use of stablecoins by North Korean agents, terrorist financiers, drug traffickers and other illicit actors had increased over the previous year, and per its report, “most on-chain illicit activity now involves stablecoins.”

FATF reports that weak or inconsistent know your customer (KYC) and Travel Rule implementation had substantially increased the risk of stablecoins being used for money laundering and terrorist financing.

“As mainstream firms like Western Union and Nuvei, and others, pivot toward stablecoin infrastructure, their ability to scale responsibly will hinge both on technical rails and on compliance,” PYMNTS wrote soon after. “Robust KYC, transparent reserve audits and interoperable Travel Rule solutions can forge a multipronged strategy that serves to satisfy regulators and maintain consumer trust.”