The Erosion of Financial Safeguards

“The reduction in supervisory staff at the IRS mirrors a broader trend we’ve observed across law enforcement agencies responsible for combating financial crime,” explains Erica Hanichak, deputy director at the FACT Coalition, a Washington-based nonprofit advocating for stronger safeguards against illicit financial flows. “This sends a dangerous signal that the U.S. may be becoming a more permissive environment for dirty money, which ultimately undermines our national security and the integrity of our financial markets.”

The IRS declined to comment on the staffing reductions. This silence adds to the growing concerns about the agency’s ability to effectively regulate the cryptocurrency sector. The situation is particularly troubling given the increasing role cryptocurrency plays in facilitating various types of financial crimes, from ransomware attacks to sanctions evasion.

Recent investigations, including ICIJ’s The Coin Laundry, have exposed the vulnerabilities within the cryptocurrency ecosystem. The investigation, published in collaboration with 37 media partners across 35 countries, revealed that as recently as July 2025, Huione Group, a Cambodian financial institution identified by U.S. authorities as a “primary money laundering concern,” was actively transferring substantial sums of cryptocurrency to major exchanges like Binance and OKX. These transfers continued even after U.S. officials had flagged serious deficiencies in the exchanges’ AML protocols.

This case highlights the challenges of tracking illicit funds as they move across borders and through various cryptocurrency platforms. The lack of adequate oversight allows criminals to exploit the anonymity and decentralization of cryptocurrency to conceal their activities and profit from illegal gains. What level of international cooperation is truly needed to effectively combat crypto-related money laundering?

The decline in IRS staffing isn’t happening in a vacuum. A separate investigation revealed that the IRS unit responsible for auditing billionaires has lost 38% of its employees since January, further straining the agency’s resources. Inside the IRS details this concerning trend.

Furthermore, the proliferation of cryptocurrency ATMs, often found in retail locations like Circle K, presents another avenue for illicit financial flows. Retailers keep cashing in on crypto ATMs as scams surge, according to ICIJ reporting, raising questions about the responsibility of these businesses to prevent money laundering and fraud.

The cryptocurrency giant Tether, a stablecoin pegged to the U.S. dollar, has also come under scrutiny for its potential role in facilitating financial crime. Cryptocurrency giant Tether is wildly profitable, but can it do more to stop financial crime? The question remains a central focus for regulators and investigators.

Frequently Asked Questions About Crypto and Money Laundering

• What is cryptocurrency money laundering?

  Cryptocurrency money laundering involves disguising the origins of illegally obtained funds by converting them into cryptocurrency and then moving them through various transactions to obscure their trail.

• How does the IRS regulate cryptocurrency?

  The IRS treats cryptocurrency as property for tax purposes and requires taxpayers to report any gains or losses from cryptocurrency transactions. The agency also has a dedicated unit responsible for investigating tax evasion and other financial crimes involving cryptocurrency.

• Why are cryptocurrency ATMs a concern for money laundering?

  Cryptocurrency ATMs often require minimal identification, making them attractive to individuals seeking to launder money anonymously. They can be used to convert cash into cryptocurrency without leaving a paper trail.

• What is Tether and why is it controversial?

  Tether is a stablecoin designed to maintain a 1:1 peg with the U.S. dollar. However, concerns have been raised about its reserves and its potential role in facilitating illicit financial activity.

• What can be done to combat money laundering in the cryptocurrency industry?

  Strengthening regulations, increasing international cooperation, and improving AML compliance by cryptocurrency exchanges are crucial steps in combating money laundering in the cryptocurrency industry. Increased funding for regulatory agencies like the IRS is also essential.