Stablecoins and AML: What Compliance Teams Need to Do
For compliance leaders, the GENIUS Act represents a new chapter for financial crime compliance in the stablecoin era. This comprehensive federal framework, enacted in July 2025, explicitly brings stablecoin transactions under BSA requirements—the same AML scrutiny as wire transfers—forcing financial institutions to overhaul their digital asset compliance programs.
The timing isn't coincidental. As of July 2025, stablecoins have more than doubled to $250 billion in market capitalization from $120 billion just 18 months ago. In 2024, total transfer volume reached $27.6 trillion, surpassing the combined volume of Visa and Mastercard transactions for the same period.
In September 2025, the Treasury Department opened a public comment period on GENIUS Act implementation through 20 October, 2025, seeking input on key compliance areas including AML program requirements, sanctions obligations and technical capabilities for blocking and freezing transactions.
The GENIUS Act creates several key requirements that directly impact compliance operations. In this article, we’ll explore what compliance teams need to understand about the new framework and how they can prepare for the heightened regulatory scrutiny.
GENIUS Act Federal Stablecoin Regulation Framework
The GENIUS Act establishes several key provisions:
Federal Stablecoin Licensing Requirements: All stablecoin issuers must obtain federal licenses and maintain segregated reserves backing their tokens, requiring robust compliance infrastructure from day one.
Enhanced AML Obligations: Under the GENIUS Act, stablecoin issuers are explicitly subject to BSA requirements, requiring them to establish effective anti-money laundering and sanctions compliance programs with risk assessments, sanctions list verification and customer identification.
Technical Compliance Capabilities: All issuers must possess the ability to freeze, seize or “burn” tokens when legally required and comply with lawful government orders.
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Stablecoin Compliance Requirements Under GENIUS Act
The GENIUS Act closes loopholes that previously let large-value stablecoin transfers slip through with minimal oversight. The new act mandates:
Enhanced due diligence requirements for institutions facilitating stablecoin transactions, including monitoring for suspicious patterns and enhanced reporting requirements;
Foreign stablecoin issuers accessing US markets must meet the same AML and sanctions compliance standards as domestic players, eliminating regulatory arbitrage; and
The compliance burden extends to custodial services, exchange operations and traditional banks offering stablecoin-adjacent services.
How Stablecoin Compliance Differs from Traditional Crypto
Stablecoins present distinct compliance challenges compared to traditional cryptocurrencies due to their design and use patterns. Federal Reserve researchers note that stablecoins are vulnerable to runs similar to money market funds, requiring monitoring for "self-reinforcing cycle of redemptions and fire sales of reserve assets"—a risk absent in traditional cryptocurrencies like Bitcoin that don't promise redemption at par.
Unlike Bitcoin or Ethereum, which primarily function as speculative assets, stablecoins are designed as payment instruments. A 2021 Treasury Department report found that stablecoins "have the potential to be used as a widespread means of payment," creating different risk profiles that require payment system oversight rather than just investment compliance.
The multi-blockchain nature of major stablecoins like USDT creates unique monitoring challenges. While Bitcoin operates on a single blockchain, USDT operates across multiple networks including Ethereum, Tron and others, requiring compliance teams to monitor the same asset across different protocols with varying transaction patterns and risk characteristics.
Stablecoin Financial Crime Typologies
The GENIUS Act's implementation comes as law enforcement and compliance teams identify new financial crime patterns unique to stablecoin ecosystems. These emerging typologies require specialized detection capabilities beyond traditional AML monitoring.
Cross-Chain Laundering: Criminals exploit stablecoins' multi-blockchain availability, moving USDT between Ethereum, Tron and other networks to obscure transaction trails. Unlike single-blockchain cryptocurrencies, stablecoin cross-chain transfers create compliance blind spots where traditional crypto monitoring tools lose visibility.
Sanctions Evasion: Stablecoins' speed and cross-border functionality create new opportunities for sanctions evasion and accelerated money laundering schemes, allowing bad actors to potentially complete traditional laundering cycles more rapidly than through conventional financial systems while exploiting jurisdictional gaps in stablecoin oversight.
Stablecoin Mixing and Layering: Fraudsters and financial criminals may use stablecoins in decentralized finance (DeFi) protocols to layer transactions through multiple smart contracts, lending pools and yield farming activities. These complex interactions create legitimate-appearing transaction histories that mask illicit fund flows.
On-Ramp and Off-Ramp Vulnerabilities: The intersection points where traditional banking meets digital assets create unique compliance blind spots. Criminals exploit weaknesses in exchange onboarding processes, use compromised bank accounts to purchase stablecoins, or leverage P2P platforms to convert stablecoins back to fiat currency while avoiding traditional AML controls.
Outside of fraud and money laundering, there are also new types of reserve manipulation schemes and regulatory arbitrage operations emerging from uneven enforcement of cryptocurrency regulations around the world. The GENIUS Act signals a new directive for US financial institutions to develop the capability to detect and counter emerging financial crime typologies.
2025-2026 Implementation Timeline and Regulatory Uncertainties
Despite the comprehensive nature of the GENIUS Act, several uncertainties remain that compliance professionals must monitor closely.
BSA Rule Modernization: Following on from the GENIUS Act, the White House signaled its intention to update the Bank Secrecy Act to better account for digital asset flows. Compliance teams must prepare for potential changes to reporting thresholds, record-keeping requirements and suspicious activity detection criteria specifically tailored to stablecoin transaction patterns.
Implementation Timeline: Regulatory agencies must develop detailed rules and guidance, a process that could take years, creating challenges for institutions planning compliance investments and strategic decisions around stablecoin operations. For example, it took nearly two years between the adoption of the Corporate Transparency Act and FinCEN issuing final rules on beneficial ownership reporting. (That requirement has since been rescinded under the second Trump administration.)
Enforcement Priorities: Regulatory agencies haven't yet communicated their enforcement priorities under the new framework. Understanding these priorities is crucial for firms to conduct effective risk assessment and allocate compliance resources.
Technology Integration Requirements: The Act mentions requirements for real-time monitoring and reporting capabilities, but technical specifications remain undefined.
How Financial Institutions Should Prepare for Implementation
The GENIUS Act's "freeze, seize or burn" technical requirements create immediate compliance obligations that many institutions currently lack the infrastructure to execute. Compliance executives must implement targeted preparation strategies based on their organization's risk profile.
Banks and Credit Unions
Credit unions and banks must establish technical capabilities to comply with law enforcement stablecoin seizure orders while integrating blockchain monitoring into existing BSA frameworks. Priority actions include conducting gap analyses against GENIUS Act requirements, implementing cross-chain transaction monitoring capabilities and establishing secure communication channels with stablecoin issuers for continuous oversight.
Crypto Firms
Cryptocurrency companies require substantial compliance program overhauls to meet banking-level federal standards. Essential elements include enhanced KYC procedures assessing stablecoin use cases and regulatory arbitrage risks, real-time monitoring across all major blockchains and automated detection of suspicious patterns like coordinated wallet activities and unusual cross-chain transfers.
Bottom Line
As the GENIUS Act moves from legislation to enforcement, compliance leaders who begin comprehensive preparation now will position their organizations for success in the new regulatory landscape, while those who wait risk finding themselves unprepared when federal oversight reaches full implementation.
It’s still early days, but the GENIUS Act marks the start of a new era in stablecoin compliance. These new requirements will reshape financial crime prevention, and it’s the responsibility of compliance executives to future-proof their institutions by staying ahead of the curve on stablecoin regulation.
