July 31, 2025
5 min read
Kenneth Rogoff
U.S. crypto laws may enable tax evasion and illegal activities worldwide by allowing near-anonymous stablecoin transactions.
Why America’s New Crypto Regulations Raise Global Concerns Over Tax Evasion
The United States is potentially providing a powerful vehicle for tax evasion and other illegal activity worldwide through its new cryptocurrency regime. By Kenneth Rogoff Kenneth Rogoff is a professor of economics at Harvard, a former chief economist at the International Monetary Fund, and the author of “Our Dollar, Your Problem: An Insider’s View of Seven Turbulent Decades of Global Finance and the Road Ahead.” Has the United States decided to be the Switzerland of crypto? The laudable aim of the Trump administration’s landmark cryptocurrency legislation, eloquently exposited by Treasury Secretary Scott Bessent, is to bring some much-needed regulatory clarity to the wild west of digital finance. However, by proffering an official stamp of approval, the U.S. is potentially providing a powerful vehicle for facilitating tax evasion and all manner of illegal activity worldwide. It doesn’t have to be this way. Dollar-backed stablecoins — cryptocurrencies convertible one to one with dollars — are potentially the most important application of blockchain technology to date. This special class of cryptocurrency, which at present accounts for a significant share of the market, holds great promise. Critics have pointed to the risks that, despite precautions, there will still be runs on some stablecoins and that fraud will be rampant, particularly among smaller players. These are serious concerns. The biggest one, however, which has thus far received only fleeting attention, is that the new law does too little to make stablecoin transactions as easy to audit as debit and credit card transactions are. Once out the door, stablecoins are tokens on a blockchain just like bitcoin and can change hands almost as anonymously as paper currency. Yes, in principle, everything on the blockchain is public information, but crypto wallets can be held pseudonymously; you don’t have to reveal who you really are. On top of that, one can hold scores of wallets, and dollar stablecoin wallets can be issued outside the U.S. by unregulated entities, in addition to being traded abroad on lightly regulated exchanges. Sure, government sleuths can often find clues that help them figure out the true owner of a crypto wallet. They will certainly bear the necessary cost in the case of a major terrorism incident. This is hardly feasible on a routine basis, however. If crypto was that easy to trace, its appeal might collapse. One might think the problem is less for stablecoins since, unlike fully decentralized cryptocurrencies such as bitcoin, there is generally a centralized issuer who is the ultimate guarantor of the coins’ value in dollars. Once out in the world, however, the centralized issuer generally has little idea of who is holding their tokens, no more than a bank knows where cash from an ATM is ultimately being held. Even the highly intrusive Chinese government, which has the capacity to read people’s body temperatures, has so far not found a way to control rampant use of stablecoins. Once dollar stablecoins fully come into the mainstream, why would Europe be likely to do any better? Such problems may well be solvable if the industry is directed to do so. If that were to happen, the big winners in the stablecoin space likely will be companies whose business models are designed around achieving regulatory compliance. So far that does not seem to be happening; most coin issuers are all about guaranteeing near total anonymity. Governments everywhere are going to find themselves dealing with a new form of super cash that significantly intrudes on their sovereignty. This will be especially problematic when the stablecoin law’s larger sister bill is passed, which will govern the larger cryptocurrency universe. The World Bank estimates that the underground economy, which consists of illicit activity and (mainly) tax evasion, accounts for an average of 17 percent of income in advanced economies and over 30 percent of income in developing economies. Conservatively, this amounts to roughly $20 trillion per year globally. This is a market where cash has long been king, but cryptocurrencies have already started to take a substantial share. Treasury Secretary Scott Bessent has estimated that dollar-backed stablecoins will generate at least $2 trillion worth of demand for Treasury bills, funding roughly a year’s worth of budget deficits. That’s great. However, by making tax evasion easier, the new bill could add a big unintended tax cut on top of the large ones already incorporated in the Big, Beautiful Bill. The regulation-lite approach of the new crypto legislation will certainly give rise to innovation. However, the legislation’s industry-friendly framework could boomerang by facilitating all manner of tax evasion and illegal activity such as drug smuggling and human trafficking. For the rest of the world, which will experience the costs with few of the benefits, the invasion of crypto products from the United States may make the tariff wars seem like a mere border skirmish.Originally published at The Washington Post on July 31, 2025.