FATF Finds Under 46% of Nations Adequately Oversee Offshore Exchanges
The Financial Action Task Force (FATF) has determined that offshore crypto exchanges create significant gaps in global anti-money laundering (AML) and counter-terrorist financing (CTF) enforcement. In a new report, “Understanding and Mitigating the Risks of Offshore Virtual Asset Service Providers (oVASPs),” the global watchdog states that these firms exploit regulatory loopholes by operating across multiple jurisdictions. A firm may incorporate in one country, host servers in another, and serve a global customer base, creating confusion over which authority holds supervisory responsibility.
The report's analysis reveals a critical weakness in the global regulatory fabric, noting that under 46% of jurisdictions have adopted an activity-based approach that extends licensing requirements to VASPs based on where their services are offered, not where they are incorporated. This discrepancy allows illicit actors to use oVASPs for large-scale fraud, terrorist financing, and obfuscating the movement of criminal proceeds through complex layering techniques and cross-chain transactions.
Stablecoins Fuel 84% of Illicit Crypto Volume
The FATF's focus on oVASPs is sharpened by the rampant use of stablecoins for illicit finance. A separate FATF report published last week highlighted that stablecoins, with a market value surpassing $300 billion by mid-2025, were involved in 84% of all illegal virtual asset activity last year. State-sponsored actors, including those from North Korea and Iran, have reportedly used stablecoins to launder funds from ransomware attacks and finance weapons proliferation.
The primary vulnerability identified is peer-to-peer (P2P) transfers using unhosted wallets, which allow assets to move directly between individuals without passing through a regulated intermediary. The FATF is not calling for new rules but is demanding stricter enforcement of its existing standards, particularly Recommendation 15. The organization urges countries to ensure stablecoin issuers and service providers conduct proper customer due diligence and transaction monitoring to close these enforcement gaps.
India Takes Down 85 Unregistered Crypto URLs in Regulatory Push
National regulators are beginning to respond with concrete enforcement actions. India provides a key case study, where its Financial Intelligence Unit (FIU-India) has already ordered the takedown of 85 website URLs linked to non-compliant oVASPs. This move follows a notable shift in trading behavior after India introduced a 1% tax on crypto transfers in 2022, which pushed a significant volume of transactions from domestic exchanges to unregistered offshore platforms.
To counter this trend, India is escalating its technical capabilities by creating an indigenous "Virtual Asset Lab" to detect and monitor high-risk offshore platforms. Furthermore, the government established a multi-agency "Virtual Assets Contact Sub-Group" in July 2023, bringing together law enforcement, intelligence agencies, and regulators to coordinate a national strategy against these emerging financial risks. This proactive enforcement model signals a growing intolerance for crypto platforms that operate outside of established regulatory perimeters.
