The Financial Action Task Force (FATF), the global anti-money laundering watchdog, issued a report on Friday identifying offshore cryptocurrency exchanges with weak know-your-customer (KYC) controls as a 'critical vulnerability' in sanctions enforcement, particularly regarding Russian and North Korean evasion.
The report, 'Virtual Assets and Sanctions Evasion: 2026 Update,' found that 78% of sanctions-related crypto transactions in 2025 involved at least one exchange registered in jurisdictions with no or minimal AML enforcement, including the Marshall Islands, Seychelles, and the Autonomous Republic of Crimea (occupied Ukraine).
FATF President T. Raja Kumar said: 'We are seeing a professionalization of sanctions evasion. Criminal networks are now building purpose-built offshore exchanges that operate entirely outside the regulated financial system.'
'Travel Rule' compliance gaps
The report also found that only 12% of virtual asset service providers (VASPs) globally have fully implemented FATF's 'Travel Rule,' which requires sharing originator and beneficiary information for transactions over $1,000. The lack of compliance allows funds to move between exchanges without traceability.
FATF recommended that member countries blacklist exchanges operating from non-compliant jurisdictions and restrict domestic financial institutions from processing payments to those platforms. The European Union has already proposed such measures; the U.S. Treasury is considering similar action.
We are seeing a professionalization of sanctions evasion. Criminal networks are now building purpose-built offshore exchanges that operate entirely outside the regulated financial system.
The report named five exchanges as 'high-risk' — none of which responded to requests for comment. FATF also published updated guidance for national regulators on identifying and sanctioning non-compliant platforms.
