Global efforts to combat money laundering and illicit activities in the cryptocurrency space face significant hurdles due to the insufficient adoption of the Financial Action Task Force (FATF) Travel Rule. The Travel Rule came into effect in 2019. It mandates that Virtual Asset Service Providers (VASPs) like cryptocurrency exchanges collect and share sender and receiver details in virtual asset transactions, increasing transparency and preventing the misuse of crypto to facilitate crime. Yet, even though it is so consequential, compliance is abysmally low with three-quarters of jurisdictions not fully implementing the rule. This non-enforcement creates a gaping hole for dirty money to move freely throughout the crypto landscape. In fact, it further complicates the ongoing fight against organized crime and money laundering.
Lagging Legislation and Implementation
According to FATF’s June 2023 progress report, 58 jurisdictions have adopted legislation to put the Travel Rule into effect. It’s certainly a step in the right direction compared to only 29 jurisdictions in 2022, but the pace of adoption is still tortoise-like. Over two years since the global implementation deadline was set, many countries still lack the requisite legal framework to enforce the Travel Rule. This lack of clarity makes full implementation and compliance difficult.
Alarmingly, as recent as March 2023, over 75% of jurisdictions are only partially or not compliant at all with the FATF Travel Rule. This pervasive lack of compliance leaves an open door for nefarious actors to exploit to move illicit funds across borders with alarming ease.
The consequences of this regulatory gap are stark. It undermines the integrity of the emerging crypto market and poses risks to the entire financial system.
The Rise of Illicit Crypto Transactions
The lackluster implementation of the FATF Travel Rule has played a role in the 20 fold increase in illicit crypto transactions. In 2023, these so-called sales transactions reached an astonishing $46.1 billion, demonstrating the extent of this rampant issue.
For example, Chainalysis’ 2025 Crypto Crime Report forecasts a significant increase in overall illicit crypto transactions. It projects the 2024 number to exceed the mind-boggling $46.1 billion set in 2023. This projection highlights the pressing need for more efficient regulatory approaches and increased international collaboration.
Deafening silence on these matters drives the illegal trade. It wears away trust in the crypto industry as a whole, blunting its potential for honest innovation and economic expansion.
Global Implications and the Way Forward
Failure to adequately adopt the FATF Travel Rule has troubling consequences that extend outside of the crypto space. It is damaging to international cooperation on countering money laundering and organized crime. In 2023, an estimated 5% of global GDP was associated with laundered money, showcasing the scale of the issue.
Huione, a Cambodia-based financial conglomerate, operates one of the largest hubs for cyber scams, human trafficking, and money-laundering operations in the world. This operation illustrates the nexus between illicit finance and criminal enterprises. More vigorous enforcement of the FATF Travel Rule would go a long way to shutting down these operations.
International cooperation and the harmonization of regulatory standards are essential to effectively address the challenges posed by illicit crypto transactions. Nations need to stop dragging their feet on implementing the FATF Travel Rule, and cooperate with one another to plug regulatory holes.
