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Do digital assets play a role in illicit finance? US Treasury asks for public feedback

Do digital assets play a role in illicit finance? US Treasury asks for public feedback

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What role do digital assets play in illicit financing? Can the US Treasury and other regulators play a greater role in protecting digital asset investors? Are current regulations still appropriate for the Bitcoin sector? These are the questions the Treasury is asking the public in its latest “request for comment”.

Titled “Ensuring Responsible Development of Digital Assets; Request for Comment,” it was published this week and wants public feedback on illicit financing, consumer protection, promoting innovation and more.

The Treasury Department has tightened sanctions against digital asset addresses, exchanges and even miners this year, targeting North Korea and Russia. The latter came under increased sanctions after it attacked its neighbor Ukraine in February this year.

Now the institution wants to know what the public thinks about its actions and whether it can do better.

“Treasury welcomes feedback on any issues that commenters believe are relevant to Treasury’s ongoing efforts to assess illicit financial risks associated with digital assets and to ongoing measures to mitigate those risks,” it read.

The request for comment stems from President Joe Biden’s proposed framework for digital asset regulations, which was released last week and followed a March executive order. Biden’s latest framework called on all regulatory agencies to adopt a more robust approach to digital asset regulations. However, it refrained from giving any specific authority to the SEC, CFTC or other agencies on the front lines of Bitcoin regulation.

Some of the questions the Treasury wants public input on are:

  • If it has fully defined the illicit financial risks associated with digital assets.
  • How the future innovations of digital assets can cause new illegal financial risks.
  • The role of NFT and DeFi in illegal financing.
  • What additional clarity is required regarding money laundering/CFT and sanctions obligations.
  • How the government can fight ransomware.

The department also wants to hear from the public about central bank digital currencies (CBDCs), specifically how it can “effectively support the inclusion of AML/CFT controls in a potential US CBDC plan.”

This last concern may be a bit of a stretch, as the Federal Reserve has not yet decided on the feasibility and need for a digital dollar, or FedCoin as some call it. The Fed recently made it clear that FedCoin is not in its immediate plans, and board member Michelle Bowman said the FedNow instant payment system is a better alternative to a CBDC.

What Bitcoin Shouldn’t Do vs. What It Can

Although it has required feedback, it is versatile, but the Ministry of Finance is primarily interested in the use of digital assets in illegal activities.

Brian Nelson, the Under Secretary for Terrorism and Money Laundering Intelligence, echoed this, stating that in the absence of adequate regulations, “digital assets can pose a significant risk to national security by facilitating illicit financing such as money laundering, cybercrime, and terrorist activities.”

“As we work to implement the Illicit Finance Action Plan, hold bad actors accountable and identify any gaps in existing enforcement, we look forward to the public’s input on this urgent work,” he said.

Many in the digital assets space have criticized the Treasury Department’s focus on the illicit side of digital assets (which research has shown accounts for 0.15% of trading). The US Blockchain Association described it as a “missed opportunity to solidify US crypto leadership”.

This criticism has done little to stop the department. In a September 20 hearing before the Senate Banking Committee, Elizabeth Rosenberg further asserted that digital assets are being used to evade sanctions. Rosenberg, who is tasked with curbing terrorist financing at the department, specifically pointed to the use of mixers in the months after sanctions were imposed on Tornado Cash.

“Anonymizing technology like mixers […] are really concerned about understanding the flow of illicit finance and getting after it,” he told lawmakers.

See: CoinGeek Conference New York, Investigating Criminal Activity on the Blockchain

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New to Bitcoin? Check out CoinGeek Bitcoin for beginners section, the definitive resource guide to learn more about Bitcoin – as originally designed by Satoshi Nakamoto – and blockchain.



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