Despite GENIUS Act, Crypto Pathways Remain for Criminals and Terrorists to Exploit U.S. Financial System

The recently enacted GENIUS Act marked a watershed moment in U.S. digital asset regulation, establishing the country’s first comprehensive federal framework for payment stablecoins. The law aims to bring clarity to the fast-growing market for dollar-backed digital assets by imposing requirements around issuer registration, capital and liquidity levels, reserve management, and anti-money laundering (AML) standards. Issuers are now formally required to meet transparency rules, conduct regular audits, and comply with customer due diligence standards.

While this legislative progress is widely viewed as a positive step toward fostering innovation within the regulated financial system, significant vulnerabilities remain. Despite new mandates, stablecoins and other crypto assets continue to offer avenues that can be exploited by criminals and terrorist organizations. The digital, borderless nature of these assets, combined with varying regulatory standards internationally, creates substantial loopholes. Sophisticated actors are able to move funds outside the reach of U.S. authorities by utilizing offshore platforms, decentralized finance protocols, privacy coins, and unregulated intermediaries.

The GENIUS Act treats stablecoin issuers as financial institutions under U.S. AML statutes. However, oversight of these entities—especially non-bank issuers and those operating from outside the U.S.—poses considerable challenges. Even with strict controls domestically, ill-intentioned actors can easily route funds via jurisdictions with weaker enforcement, or leverage decentralized exchanges that lack clear accountability or an operator to regulate.

Regulators are now tasked with implementing rules to enforce the Act’s policy goals, but that process will take time and may encounter technical and jurisdictional obstacles. Without robust international cooperation and effective enforcement of global AML standards, illicit actors will continue to find cracks in the regulatory armor. As the adoption of digital assets accelerates, so too does the imperative for lawmakers and regulators to continually monitor evolving risks, update controls, and ensure that the framework remains as adaptable and resilient as the technologies it is meant to oversee.