Overview The FATF in its latest targeted report warns that stablecoins are being increasingly exploited for illegal purposes. State‑linked actors from IRGC and the Democratic People’s Republic of Korea (DPRK) are using them for money‑laundering, terror financing and procurement of weapons of mass destruction. Key Developments Stablecoins transferred via unhosted wallets on a peer‑to‑peer (P2P) basis pose heightened ML/TF/PF risks. North Korean cyber‑criminal groups such as the Lazarus Group , Andariel and Onyx Sleet are rapidly adopting stablecoins for ransomware proceeds and virtual‑asset theft, including a $1.46 billion heist in Feb 2025. DPRK’s 221 General Bureau is expanding stablecoin use beyond cyber‑crime to purchase military equipment and raw materials, notably employing USDT in WMD‑related procurement. Iranian actors, especially the IRGC, are leveraging stablecoins to finance proliferation, acquire drone components and support proxy groups like the Houthis. Indian FIU’s operational analysis uncovered a Southeast‑Asia‑based payment service facilitating USDT deposits, instant liquidation and INR withdrawals for Indian workers in scam centres, leading to a FIU notice in Oct 2025. Important Facts As of mid‑2025, more than 250 stablecoins with a combined market capitalisation exceeding $300 billion are in circulation. The report highlights that terrorist organisations now prefer stablecoins over Bitcoin because of price stability and easy liquidity. Relevance for UPSC Understanding the misuse of stablecoins links directly to GS III topics on financial crimes, international sanctions, and the role of multilateral bodies. It also touches upon GS II (India’s external relations) concerning sanctions on Iran and North Korea, and GS IV (ethics) regarding the challenges of regulating emerging digital assets. Way Forward Adopt tailored regulatory frameworks for stablecoin issuers, including licensing and AML/KYC obligations. Deploy advanced blockchain analytics and programmable smart‑contract controls to monitor suspicious flows. Strengthen domestic‑international cooperation among FIUs, central banks and law‑enforcement agencies. Encourage India’s FIU to issue timely advisories and block non‑compliant service providers. Proactive policy measures will help curb the exploitation of stablecoins for illicit financing while preserving their legitimate utility in the digital economy.