Stablecoins: A Hotbed of Financial Crisis, Laundering Criminal Proceeds, and Free Foreign Exchange Movement

Stablecoins: A Hotbed of Financial Crisis, Laundering Criminal Proceeds, and Free Foreign Exchange Movement

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The Lee Jae-myung administration's proposed cryptocurrency, stablecoins, is facing criticism for its lack of fraud prevention measures, including the laundering of criminal proceeds and the free movement of foreign exchange, and for being a breeding ground for financial crisis.

The New York Times published two articles on stablecoins, stating, "Financial experts worry that the adoption of these cryptocurrencies could pose significant risks to the financial system."

The article continued, "While they can be easily used to transfer official currency into digital currencies and back again, they lack deposit insurance, are devoid of fraud prevention measures, and have little regulation to prevent people from using them for illicit transactions."

The New York Times reported on the 7th that “criminals now have a far more viable alternative: stablecoins, cryptocurrencies pegged to the US dollar that significantly outperform traditional financial oversight,” in another article titled “How Cryptocurrencies Help Criminals Launder Money and Evade Sanctions,” under the headline “Experts Say Stablecoins Can Be Moved, Swapped, and Mixed in a Hard-to-Trace Way Through Layers of Intermediaries.”

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Stablecoins are digital tokens that can be purchased with local currency and transferred across borders.

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The New York Times, reviewing company announcements, online forum messages, and blockchain data, found that funds could also be returned to the traditional banking system, such as by transferring them to debit cards. A February report by blockchain analytics firm ChainAlysis estimated that illicit transactions involving stablecoins amounted to up to $25 billion last year.

As more Russian oligarchs, Islamic State (IS) leaders, and others begin using cryptocurrencies, the rise of these dollar-pegged tokens threatens to undermine one of America's most powerful foreign policy tools: disconnecting its enemies from the dollar and the global banking system.

Late last month, the UK arrested members of a multibillion-dollar money laundering network that took over a Kyrgyz bank to evade sanctions and facilitate payments for Russian military aid.

According to the UK's National Crime Agency, the launderers converted funds generated from drug trafficking, firearms sales, and human trafficking into Tether, the most popular stablecoin, for a fee.

Sal Melki, deputy director of economic crime at the UK's National Crime Agency, said, "These 'cash-to-cryptocurrency' swaps are an essential part of the global criminal ecosystem."

For decades, treasury departments have had to invest billions of dollars in compliance measures for banks and credit card companies to track and block entities subject to government sanctions to root out illicit financial activity. But now, with stablecoins, the vast majority of global dollar-denominated trade flows through these regulatory channels, making dealing with sanctioned entities incredibly difficult.

Stablecoins completely bypass this system.

“Through layers of intermediaries, digital dollars can be moved, exchanged, and commingled across different fund pools, making them more difficult for authorities to track,” Ari Redboard, a former Treasury official and now policy director at blockchain data firm TRM Labs, told the New York Times. “Malicious actors are moving faster than ever before,” he said.

“Sanctions and other economic penalties are now less effective when criminals can move millions of dollars with a few clicks.” The New York Times reported, "Luxury goods once helped smugglers, money launderers, and sanctioned individuals hide their illicit wealth in the same way diamonds, gold, and art were—but they were cumbersome to transport and difficult to spend. Now, criminals have a much more practical alternative: stablecoins, cryptocurrencies pegged to the U.S. dollar that significantly surpass traditional financial oversight."

The New York Times conducted its own experiment to see how easily stablecoins could be converted.

To test how cryptocurrencies slip through banking cracks, the team visited a cryptocurrency ATM in Weehawken, New Jersey, and converted cash into stablecoins.

Shortly after inserting two $20 bills into the machine, the tester received a notification on their phone informing them that the cryptocurrency had arrived in their digital wallet.

A Telegram bot guided them through the next step: using the stablecoin to create a Visa payment card number with a balance they could spend anywhere.

Payment cards work much like debit cards, but they are not tied to a bank account. In this case, the card the tester received did not require address or identity verification, effectively guaranteeing a degree of anonymity for personal spending.

Despite US anti-money laundering laws requiring banks to verify an account holder's identity and the source of funds before issuing credit, debit, or payment cards, the stablecoin anonymity experiment was completely legal.

The Telegram bot that issued the tester's card was operated by WantToPay, a company that advertises Visa and Mastercard to Russians looking to shop abroad or make online purchases but is blocked by US sanctions. Sanctions related to the invasion of Ukraine have prevented many US companies from processing payments at most Russian banks.

Advertisements on WantToPay's website and Telegram channel promise instant issuance without the traditional customer verification performed by banks.

WantToPay is registered in Hong Kong, but company records show it is led by a Russian entrepreneur from Thailand.

Hundreds of reviews on Russian-language online forums describe using the card to bypass restrictions and pay for online platforms unavailable to Russians, such as ChatGPT and Netflix. WantToPay did not respond to multiple requests for comment. After contacting the company, the mention of Visa and Mastercard disappeared, and a notice was posted on Telegram stating that the card was no longer being issued.

In a statement, Visa stated that it maintains strong compliance controls and requires all customers and partners to comply with applicable laws. After notifying Visa about the WantToPay card, Visa said it had launched an investigation.

A Mastercard spokesperson stated that the company has zero tolerance for illegal activity, and that it reviews potential issues and ensures compliance with local laws and standards.

Telegram spokesperson Devon Spurgeon said the platform complies with all US money laundering regulations and removes illegal content as soon as it is identified.

However, WantToPay was only one part of a chain of financial intermediaries the researcher encountered. While WantToPay was marketing the researcher's card, the researcher learned that WantToPay had used another company to generate the card.

The researcher soon traced the Visa card to Dock, a Brazilian financial technology company that issues cards for companies like WantToPay. Dock is one of several financial companies that assist companies issuing Visa and Mastercard cards through banks, but it is not a regulated financial institution and therefore is not subject to the same compliance standards as its banking partners.

Brazil-based Dock denied any relationship with OneToPay, saying the financial company had canceled cards suspected of being involved in illegal activity.

Dock said in a statement that the company "requires customers to comply with mandatory customer awareness requirements."

The growing chain of custody from the tester's card demonstrated how malicious actors can exploit the gap between card issuers and financial regulators using cryptocurrency.

On Telegram and elsewhere, the tester identified 24 additional companies advertising anonymous Visa and Mastercard products funded by stablecoins, with spending limits of up to $30,000.

According to corporate disclosures and government records, these companies were incorporated in several countries worldwide, including Costa Rica, Malta, Georgia, Kazakhstan, and Russia, and most relied on automated Telegram bots to onboard customers and manage transactions. In July, President Trump signed the GENIUS Act, described as the first major cryptocurrency bill in the United States. The European Union opposes it, and the Lee Jae-myung administration, led by Kim Yong-beom, Chief of Staff for Policy, is pushing ahead with the introduction of stablecoins.

The New York Times reported, "These regulations primarily apply to US exchanges like Coinbase, which are required to verify customers and monitor transactions. Despite this, funds can still move freely through offshore platforms, unregulated coins, and decentralized financial systems that do not require these requirements."

Tether, a US-based stablecoin company with over $180 billion in stablecoins in circulation, is headquartered in El Salvador and is therefore exempt from the new regulations.

Tether holds over $112 billion in US Treasury securities, and any enforcement action against Tether could destabilize major financial markets.

The New York Times reported that "the political and financial entanglements surrounding Tether further complicate the situation," adding that "the company has close ties to the family of Commerce Secretary Howard Rutnick, who is responsible for restricting exports of sensitive U.S. technology, and these restrictions can be circumvented by transacting with stablecoins like Tether."

The Times also reported that "One of Rutnick's sons, Brandon, is chairman of Cantor Fitzgerald, a company that provides services to Tether and is developing the world's largest offshore dollar token, a position intersecting with key federal enforcement roles. Another son, Kyle, is a vice chairman of the company."

Efforts to police the overseas cryptocurrency ecosystem have repeatedly failed, and a Kyrgyzstani company this year introduced dollar-backed Visa and Mastercard with a ruble-pegged stablecoin.

In another article examining the workings of stablecoins, the New York Times stated that "they can typically be purchased in minutes on major online cryptocurrency exchanges using wire transfers or credit cards. The coins are stored in digital wallets, allowing for cheap and fast transactions anywhere in the world."

The passage of the GENIUS Act, the Trump administration's flagship cryptocurrency policy, is expected to lead to a surge in stablecoin adoption, while the existing cryptocurrency, Bitcoin, is plummeting.

The US Federal Reserve estimates that the total market value will reach $3 trillion in five years.

According to the World Bank, this represents nearly the entire gross domestic product (GDP) of France in 2024.

Rubail Berwadker, head of global growth at Visa, which has expanded into stablecoin payments, welcomed the GENIUS Act, saying, "We absolutely love the GENIUS Act. It makes it much easier for more legitimate banks, tech companies, and others to enter the ecosystem because they know exactly what they're getting into."

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Prayer, executive director of the Consumer Federation of America, told the New York Times that the bill "falls far short of existing regulations for financial institutions," and that it "devolves financial power to companies that fundamentally don't believe the federal government has any role in regulating financial transactions."

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A Coin That Provides All Power Without Oversight.

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Because stablecoins exist in a regulatory gray area, Tether has become a popular currency for criminals and money launderers, the New York Times reported.

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According to the US Financial Crimes Enforcement Network, ISIS has used stablecoins to fund its operations.

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The Treasury Department has revealed that Russian oligarchs have moved millions of dollars in Tether across borders to evade European sanctions. On Telegram, underground channels openly advertise weapons and drugs, accepting Tether payments and promoting "no fees" and untraceable transactions.

A Tether spokesperson said in a statement, "Blockchain transactions are traceable in a way that cash and traditional banking channels cannot. While criminals primarily use cash and all forms of money, digital assets create immutable records that law enforcement can trace."

The risks of stablecoins extend beyond criminal use. Because they directly connect the cryptocurrency market to traditional finance, failures in one system can cascade to the other, directly contributing to financial crises.

During the recent Bitcoin price decline, people cashed out using stablecoins, with data from industry firm CoinMarketCap showing a nearly 3% drop in the total number of Circle Stablecoins over 13 days.

While the selloff was relatively slow, spanning nearly two weeks, a faster withdrawal could have led to far more serious problems, a scenario that can be simulated. As the value of cryptocurrencies plummets, investors flock to stablecoins, partly to help them liquidate their investments. As cryptocurrencies continue to plummet, stablecoin companies begin selling Treasury bonds to repay their customers.

As a result, Treasury securities lose value, impacting bank and money market fund reserves. A financial crisis can also work in the opposite direction, a risk that has been clear for two years.

The New York Times stated that "banks and money market funds will fail," and that "the collapse could be similar to the collapse of Silicon Valley banks in March 2023."

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In its article, "Your Money Could Be Locked in $300 Billion in Cryptocurrency," the Times described Ted's collapse scenario as "the funds backing stablecoins disappearing," stating that "Circle had $3.3 billion locked up in failed banks, causing the USDC currency to plummet to 87 cents per coin." Stablecoins could trigger a panic, causing cryptocurrencies to plummet, exchanges to freeze withdrawals, and margin calls to force sell-offs, potentially spreading to Bitcoin and Ethereum.

The 2023 Silicon Valley Bank failure ended with federal regulators guaranteeing all deposits held by Silicon Valley Bank.

However, the stablecoin incident exposes a serious vulnerability. Unlike bank deposits, stablecoin holdings lack a federal safety net, putting customers directly at risk if the issuer is shaken.

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“The risk isn’t simply assumptions; stablecoin issuers have a shaky track record when it comes to managing customer funds,” said American University professor Hilary Allen. “For example, in 2021, Tether reached a settlement with the New York Attorney General, according to court documents, in which investigators falsely claimed Tether held sufficient assets to cover the amount of Tether in circulation. Had there been a surge in withdrawals, Tether might not have been able to support all stablecoin holders.” On November 26, credit rating agency S&P Global downgraded Tether's asset holdings to "weak," the company's lowest rating, citing "persistent disclosure gaps" and an overreliance on high-risk assets like Bitcoin, gold, and corporate bonds.

A Tether spokesperson said in a statement that its currency "has remained stable despite banking crises, currency exchange failures, and extreme market volatility," and that "since the New York Attorney General settlement, Tether has increased its safe-haven holdings."

Professor Allen, responding to this statement, told the New York Times that "Tether's complex history undermines its credibility," and that "questions about its financial strength could result in a score."

Tether, one of the best-known stablecoin issuers, reported a profit of $13 billion last year solely from customer funds, and its current circulation is approximately $180 billion, according to company disclosures. Circle, the issuer of the second-largest stablecoin, USDC, holds approximately $78 billion.

During the cryptocurrency boom, stablecoins, which are worth $1 but are not government-issued, are digital currencies with little legal oversight. Their recent popularity has led to a rapidly growing market of $300 billion.

Stablecoins can be used to purchase goods online, invest, or send money abroad, with minimal fees.

There are currently hundreds of stablecoin brands, with more expected to follow.

Stablecoin issuers are among the largest buyers of government bonds. Circle and Tether hold approximately $136 billion in sovereign bonds, according to financial statement analysis, putting them on par with major governments and institutional investors. Kyle Lutnick, a 29-year-old real estate developer and son of the US Secretary of Commerce, attempted to launch a nuclear power plant project in Texas using South Korea's $350 billion investment in the US through Doosan. Trade Minister Kim Jeong-gwan visited Lutnick's private residence in New York to negotiate the investment, reaching an initial agreement.

Trade negotiations with the US were led by Kim Yong-beom, the policy chief, who negotiated with Commerce Secretary Lutnick. Kim is spearheading the issuance of stablecoins.

The Lee Jae-myung administration, the Democratic Party, and the Korean media are supporting the initiatives of tech companies like KakaoTalk's Toss, with "fintech"-led stablecoins that exclude banking supervision.
Maeil Business Newspaper reported on the 8th, "The legislative framework for the won-denominated stablecoin, currently being pursued by the government and the ruling party, is rapidly shifting behind the scenes." The paper added, "The prevailing theory of a 'consortium with a 51% or more bank stake' has not yet been confirmed as the government's official position. Financial authorities are understood to be focusing on global standards that allow fintech companies to enter the market and are currently in final coordination with the government and the Bank of Korea." Maeil Kyungjae continued, "It has been reported that major domestic big tech and fintech companies such as Kakao and Toss have already completed technical preparations so that they can immediately begin business if the bill passes," and "At the ruling party-government meeting on the 1st, lawmakers belonging to the Digital Asset TF (omitted) declared that even if the government bill is not submitted, the Democratic Party will push for the introduction of a party platform within December, centered on lawmaker-proposed bills, through the Democratic Party Digital Asset TF (special committee) meeting on the 11th. The plan is to speed up the process with the goal of processing it in the extraordinary session of the National Assembly in January next year."

See <US Commerce Secretary's Son, Doosan, and Lee Jae-myung's Joint UAE Project for a $350 Billion Nuclear Power Plant Data Center, November 22, 2025>

<Trump's Executive Order to Invest Severance Pay in Cryptocurrency, Lee Jae-myung Administration Issues Stablecoins, August 8, 2025>

<BlackRock Policy Director Kim Yong-beom's Close Encounter with Lime Fund's Ponzi Stablecoin, June 9, 2025>

<Lee Jae-myung Administration's Stablecoin Swings the Korean Won, Linked to the Trump Genius Act, June 8, 2025>