The Financial Action Task Force (FATF) has issued a stark warning regarding the increasing use of cryptocurrencies by sanctioned states to finance weapons programs. In a recent report published on June 20, the global financial crime watchdog highlighted the need for countries to address regulatory gaps that are facilitating illicit finance within the digital asset space.
According to the FATF, sanctioned states and networks involved in the proliferation of weapons of mass destruction (WMDs) are exploiting weaknesses in the global financial system. The report, titled Complex Proliferation Financing and Sanctions Evasion Schemes, revealed that many countries are failing to meet international standards for countering this type of finance.
Only 16% of countries assessed by the FATF and its Global Network were deemed effective in applying targeted financial sanctions under the United Nations Security Council’s resolutions on proliferation. The report emphasized the urgent need for both public and private sectors to strengthen compliance measures to prevent those behind WMD programs from circumventing controls.
The FATF warned that failure to act swiftly could result in sanctioned entities continuing to evade sanctions through evolving tactics such as setting up front companies, manipulating beneficial ownership data, and using digital assets to conceal transactions. These networks often rely on intermediaries to move funds and materials while concealing their true identities from financial institutions.
One of the primary concerns highlighted in the report is the increasing role of virtual assets in sanctions evasion. North Korea was specifically identified as the most active state actor in proliferation financing, leveraging its growing digital connectivity and diverse revenue streams to evade detection. In a notable incident in February 2025, the country was linked to the theft of $1.5 billion in cryptocurrency from the exchange ByBit.
The FATF also underscored North Korea’s use of overseas IT workers and illicit activities across multiple sectors to generate income for its weapons development efforts. The report emphasized that illicit actors are rapidly adapting to exploit legal loopholes, technology, and inconsistent enforcement across jurisdictions to evade sanctions.
To assist countries in responding to these threats, the FATF included practical guidance in its report, such as risk indicators and enforcement recommendations for stronger public-private collaboration and improved reporting of suspicious transactions. The watchdog stressed the importance of timely intelligence sharing across borders and sectors to combat the evolving threat effectively.
The FATF called for a coordinated global response to tighten controls and enhance information sharing to prevent the misuse of digital assets for sanctions evasion. Without comprehensive measures, the report warned that the proliferation of weapons programs funded through digital assets could pose severe consequences for global security.
In conclusion, the FATF urged all jurisdictions to review their compliance frameworks, enhance oversight of crypto-related activities, and take decisive action where necessary. The warning comes amidst growing concerns among international regulators over the use of cryptocurrencies by state-backed threat actors, as evidenced by the surge in crypto-related crimes in recent years.