U.S. FSC to discuss illicit activity in crypto at upcoming hearing

November 13, 2023 Coin Telegraph

AML

Discussions around illicit activity, such as money laundering and terror financing, will take center stage at the Financial Services Committee hearing.

The United States Financial Services Committee (FSC) has scheduled a Nov. 15 hearing for a deep dive into the illicit activities in the cryptocurrency ecosystem.

The hearing, ‘Crypto crime in context: breaking down the illicit activity in digital assets,’ will feature prominent crypto entrepreneurs as attendees.

According to the Committee’s calendar, Mr. Bill Hughes, senior counsel and director of global regulatory matters at Consensys, and Mr. Jonathan Levin, co-founder and chief strategy officer at Chainalysis, will participate in the hearing as witnesses. Former federal officer and human trafficking finance specialist Jane Khodarkovsky will also join the duo as a witness. The Committee memorandum on the hearing clarifies the FSC’s motive:

“To ensure that the digital asset ecosystem is not exploited by bad actors, it is critical that Congress understand the degree to which illicit activity exists, what tools are available to combat this activity and explore any potential gaps to prevent and detect illicit activity.”

Discussions around illicit activity, such as money laundering and terror financing, will take center stage at the hearing. FSC cited a Chainalysis report from January 2023, which states that illicit cryptocurrency volumes reached all-time highs amid a surge in sanctions designations and hacking.

The hearing will also examine the depth of Anti-Money Laundering and counter-terrorism financing (AML/CTF) implemented by crypto exchanges and decentralized finance (DeFi) providers.

In addition, the role of governing entities, including the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), and the Department of Justice (DOJ), will also be discussed at the hearing.

In July, Patrick McHenry, the chairman of the FSC, announced the markup of legislation to bring regulatory clarity for the issuance of stablecoins designed to be used for payment.

#NEW: Chairman @PatrickMcHenry announces a markup of legislation to provide clarity for the digital asset ecosystem and address national security concerns.

Read more https://t.co/kb2smj24Io
— Financial Services GOP (@FinancialCmte) July 22, 2023

Parallelly, the DOJ has also decided to double the headcount of its crypto crime team. In the process, the DOJ merged its two teams — the Computer Crime and Intellectual Property Section (CCIPS) and the National Cryptocurrency Enforcement Team (NCET) — to form the new “super-charged” unit that was tasked to combat ransomware crimes.

Magazine: Exclusive: 2 years after John McAfee’s death, widow Janice is broke and needs answers

Crypto exchange Binance reopens exchange services in Belgium

September 25, 2023 Coin Telegraph

anti-money laundering

In June, Binance was ordered to halt its services in Belgium "with immediate effect," leading to the exchange redirecting Belgian users to its Binance Poland entity.

Crypto exchange Binance has reopened registrations and access to its products and services for its Belgian crypto users again — three months after the exchange was ordered by Belgium’s finance regulator to cease cryptocurrency-related services.

“New registrations of Belgian residents are welcome on our platform once again,” Binance confirmed in a Sept. 25 post on X (formerly Twitter). Binance said various Binance products and services will become accessible again to Belgian users who have accepted the new Terms of Use.

Great news for our Belgian community

We've now reopened registrations and access to #Binance products and services in Belgium. https://t.co/IActiqYMjm
— Binance (@binance) September 25, 2023

On June 23, the Belgian Financial Services and Markets Authority accused Binance of violating Belgium’s anti-money laundering and counter-terrorism financing laws for allegedly offering crypto-related services “from countries that are not members of the European Economic Area.”

It ordered Binance to cease all related services in Belgium “with immediate effect," and was required to contact all its Belgium-based clients and return all crypto and private keys the exchange held.

The ordeal led Binance to divert its services for Belgians through Binance Poland sp. z o.o. — Binance’s Polish-registered arm, which it had registered as a virtual asset service provider in January.

Binance's statement did not discuss what changes were made to allow it to resume services for Belgian users. Cointelegraph has reached out to Binance and Belgium’s FSMA for comment.

Elsewhere in Europe, Binance has signaled plans to delist stablecoins for the European market by June 2024 as a means to comply with the European Union’s incoming Markets in Crypto-Assets (MiCA) legislation, which is set to come into effect in June 2024.

Meanwhile, in the United States, a mass exodus of Binance.US executives has prompted some industry pundits to ponder whether the firm is experiencing some internal issues.

However the firm’s CEO, Changpeng ‘CZ’ Zhao has refuted those rumors on several occasions.

Magazine: Binance’s exec exodus, Nasdaq to trade AI orders and SBF loses bail appeal: Hodler’s Digest, Sept. 3–9

Binance Turkey fined 8M lira for non-compliance against money laundering

December 26, 2021 Coin Telegraph

AML

MASAK found Binance Turkey guilty of violating the Law on Prevention of Laundering Proceeds of Crime, also known as the AML Law.

The Financial Crimes Investigation Board (MASAK), which serves as Turkey’s financial intelligence unit under the Ministry of Finance and Treasury, found crypto exchange Binance’s Turkey operations guilty of violating laws that intend to prevent the laundering of money acquired through criminal means. According to local news media Anadolu Agency, MASAK carried out an audit of Law No. 5549 on Prevention of Laundering Proceeds of Crime, also known as the AML Law.

The AML Law in Turkey requires companies to identify and verify the personal identification information of the customers on the platform, which includes details such as surname, date of birth, T.C. identification number (Turkey equivalent of a social security number) and type and number of identity documents. The law also requires businesses to immediately notify the government about suspicious activities within a 10-day period.

As Cointelegraph Turkey reported, the watchdog imposed the maximum possible administrative fine of 8 million Turkish lira for the alleged violation. Additionally, this timeline also coincides with the day President Erdoğan announced the completion of a crypto law draft that will soon be handed over to the Parliament for approval.

With this, Binance also becomes the first crypto business to get fined by the Turkish government. Moreover, MASAK is working closely with Financial Action Task Force (FATF), a global regulator against money laundering and terrorist financing, according to former Treasury and Cost Minister Lutfi Elvan:

“FATF has asked for measures to be taken against crypto trading platforms.”

In line with this request, MASAK has also agreed to report transactions that exceed the value of 10 thousand lira within 10 days.

Turkey's President Recep Tayyip Erdoğan confirmed the completion of a crypto law that will soon be handed over to the Parliament for mainstream implementation.

As Cointelegraph reported, the crypto law envisions a new economic model that can bolster Turkey’s effort to bring back the depreciating value of lira. Erdoğan also said that the recent inflation on Turkish lira is not related to mathematics but a matter of process — implying a possibility and potential of lira’s value growth:

“With this understanding, we intend to channel it to a dry spot. But the exchange rate will find its own price on the market.”

The Financial Crimes Investigation Board (MASAK) has fined Binance Turkey 8 million lira (nearly $750,000) after the crypto exchange failed the financial watchdog’s audit for monitoring Anti-Money Laundering (AML) compliance.

DeFi: Who, what and how to regulate in a borderless, code-governed world?

September 25, 2021 Coin Telegraph

AML

The decentralized, disintermediated and borderless blockchain networks challenge regulators, but DeFi is the future of finance.

Hold onto your hats, boys and girls! It’s a new world — a financial system without intermediaries, that anyone can access 24 hours a day with only a mobile phone and a wallet! As Julien Bouteloup said to me:

“In DeFi, what we are building is fully decentralised technology, fully transparent, run by mathematics. No one can beat that.”

He continued: “We are building on research papers, 40 years of research, fundamental research, discrete mathematics being built and put on-chain that no one can beat. You cannot beat that. GitHub didn't exist in the ‘90s. First, the fact that we're going at the speed of light, is because everything is open source, and everyone can participate.”

A Novum Insights report stated back in August that since 2020, the DeFi market has grown by a factor 40, with the total value locked in DeFi at around $61 billion at the time (while the current TVL stands at around $165 billion). Stablecoins' capitalization, an important part of DeFi, grew in the first half of 2021 to $112 billion.

Massive gains are being made but, at the same time, DeFi investors are also losing money because DeFi is not regulated, moderated, intermediated, hosted or validated by a central authority, only driven by smart contracts. So if a smart contract fails or is attacked, consumers have no remedy. Loretta Joseph, global digital asset regulatory expert, said to me: “Regulators protect consumers and investors. In DeFi, you don't have any intermediaries to regulate, so it's totally P2P. The question is how it will be regulated in the future. People are going to get scammed. When people start to get scammed, the first thing they do is complain to the regulator.”

Indeed, since 2019, DeFi protocols have lost about $285 million to hacks and other exploit attacks. And as the experts stated, the majority of hacks were due to developer incompetence and coding mistakes. That’s significant when the sector is entirely reliant on the code.

The challenges of regulation

The U.S. Securities and Exchange Commission’s Hester Peirce said in an interview with Forkast.News about DeFi back in February: “It’s going to be challenging to us because most of the way we regulate is through intermediaries, and when you really build something that’s decentralized, there’s no intermediary. It’s great for resilience of a system. But it’s much harder for us when we’re trying to go in and regulate to figure out how to do that.”

Regulatory concerns tend to be around the volatility of crypto markets as contrasted with government-backed fiat currency, the risk of money laundering and terrorist financing, the unregulated nature of the market, and the absence of recourse for financial losses. Nonfungible tokens are exploding, generating excitement, confusion, legal questions and massive gains. NFT markets are also attracting large crypto transactions, which will likely bother regulators, who may see the big money moves in NFTs as money laundering. At a macro level, the decentralization of the financial system and the ability to manage economic stability and protect consumer interests poses a further challenge to regulators.

DeFi decentralized autonomous organizations (DAOs) are popular as a means of transferring cryptocurrencies across different blockchains. This supports crypto lending and yield farming. DAOs, by conservative estimates, oversee more than $543 million. In a DAO, information technology governance and corporate governance are one and the same. The organization is governed and operated by smart contracts, which are monitored and enforced by algorithms. The code both governs and executes. Should the algorithms fail, who then is responsible?

In a joint article, dubbed “Regulating Blockchain, DLT and Smart Contracts: a technology regulator’s perspective,” a group of researchers outline some key points to consider: (1) the importance of identifying central points which can be used to apply regulation to, such as miners, core software developers, end users. They even raise the potential for governmental or regulatory players to be potential participants; (2) issues of identifying liability — could core software developers be held to account?; (3) the challenges with the immutability and lack of update-ability of smart contracts; and (4) the need for quality assurance and technology audit processes.

It is expected that exchanges and wallet providers will be a focus for regulators. Decentralized exchanges allow users to trade directly from their wallets in a P2P manner without intermediaries. Global money-laundering watchdog the Financial Action Task Force (FATF) has exchanges in their sights. Christopher Harding, the chief compliance officer of Civic, noted that the FATF proposed guidelines which suggest that DApps will need to comply with country-specific laws enforcing FATF, AML, and Counter-Terrorism Financing requirements.

A recent review of 16 leading exchange platforms by the London School of Economics and Political Science found that just four were subject to a significant level of regulation related to trading, so there is a clear gap. Getting listed on any major exchange now requires a project to have passed auditing, but meaningful security doesn’t end there. Toby Lewis, CEO of Novum Insights, made the point:

“Also, remember that smart contracts can be attacked. Even if they are audited, it does not give you a guarantee that it will be exploit-free. Do your own research before you start.”

In an open-source environment where projects are developing at an average compound growth rate of 20% per year, finding just the right moment to regulate, wherein people are protected from risk but innovation is not constrained, is a classic problem to solve. Some governments have addressed achieving this balance by using regulatory sandboxes (U.K., Bermuda, India, South Korea, Mauritius, Australia, Papua New Guinea and Singapore), while some have gone straight to legislating (San Marino, Bermuda, Malta, Liechtenstein).

Far from resisting regulation, leading DeFi figures embrace it as part of the maturing of the industry. In an interview with Cointelegraph, Stani Kulechov, the founder of DeFi lending platform Aave, suggests that peer review will be the future: “Auditors are not here to guarantee the security of a protocol, merely they help to spot something that the team itself wasn't aware of. Eventually it's about peer review and we need to find as a community incentives to empower more security experts into the space.” In the same article, Emeliano Bonassi spoke about ReviewsDAO, a peer review forum for connecting security experts with projects looking for reviews. Bonassi sees potential for this to become a learning opportunity where people with specialized knowledge can contribute to improving the security of the ecosystem.

Tan Tran, CEO of Vemanti Group, suggested: “Going forward, I do see accelerated adoption of platforms with permissionless financial products and services that can be used by anyone anywhere, but each will be governed by a regulated-party with centralized control to ensure accountability and compliance. This is not about stopping innovation. It's more about deterring bad actors from exploiting unsophisticated consumers.” Giving an expert opinion on DeFi to Cointelegraph, Brendan Blumer, CEO of Block.one, concluded: “The real winners in the digital economy will be those that think long-term and take the time to ensure their products meet jurisdictional and professional service requirements.”

It certainly looks like exchanges and software developers could be in the sights of regulators. We anticipate regulators will look for ways to improve technology quality assurance processes and DeFi governance, which can only be done in conjunction with the industry. Mark Taylor emphasized that regulators need to continue to work in partnership with crypto industry players to protect consumers.

Julien Bouteluop explained: “We are actually building, in DeFi, everything that traditional finance has, but faster, stronger, more transparent and accessible by everyone that's here. It's really different. It means that anyone in the world can access technology and doesn't need to ask permission from anyone. I think it's necessary to push for innovation, and to build a better world.”

Who, what and how do we regulate in this global 24/7, borderless market? This is a whole new ball game. Regulators and industry will need to work hand in hand.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Jane Thomason is a thought leader on blockchain for social impact. She holds a Ph.D. from the University of Queensland. She has had multiple roles with the British Blockchain & Frontier Technologies Association, the Kerala Blockchain Academy, the Africa Blockchain Center, the UCL Centre for Blockchain Technologies, Frontiers in Blockchain, and Fintech Diversity Radar. She has written multiple books and articles on Blockchain. She has been featured in Crypto Curry Club’s Top 100 Women in Crypto, the Decade of Women Collaboratory’s Top 10 Digital Frontier Women, Lattice’s Top 100 Fintech Influencers for SDGs, and Thinkers360’s Top 50 Global Thought Leaders and Influencers on Blockchain.

The new episode of crypto regulation: The Empire Strikes Back

August 27, 2021 Coin Telegraph

AML

A decentralized exchange reckoning is coming — and it’s bigger than the infrastructure bill — thus, the DeFi community must be ready.

The latest news has left the decentralized finance community in a collective fetal position. Responding to the threat of increased regulatory oversight, leading decentralized exchange Uniswap recently restricted the trading of certain tokens. Earlier in July, Dan M. Berkovitz, chairman of the Commodity Futures Trading Commission (CFTC), said that DeFi derivatives platforms might contravene the Commodity Exchange Act (CEA):

“Not only do I think that unlicensed DeFi markets for derivative instruments are a bad idea, but I also do not see how they are legal under the CEA.”

Most worrisome of all is the initial version of the United States Senate’s $1 trillion infrastructure bill, which would create impossible tax compliance requirements for crypto firms.

Be ready, DeFi — More is coming

Yet, as long as DeFi agonizes over these looming regulations, it risks ignoring an imminent and existential regulatory challenge that has yet to make headlines.

Crypto-related policies and regulations tend to come in three flavors:

The first, such as the infrastructure bill, aims to raise revenue and enable the Internal Revenue Service to collect taxes.
The second seeks to ensure safe and sound markets for investors. Such legislation includes the U.S. Securities Exchange Act, which empowers the Securities and Exchange Commission (the enforcer of the famous Howey test that determines whether an asset is a security) to regulate securities markets, and the Commodities Exchange Act, which gives the CFTC the power to regulate derivatives markets.
The third flavor of regulation focuses on Anti-Money Laundering (AML) and Counter-Terrorism Financing (CFT). The U.S. Bank Secrecy Act, for instance, empowers the U.S. Treasury’s Financial Crimes Enforcement Network to ensure companies have a robust AML/CFT program, including explicit Know Your Customer requirements.

Global standards for these regulations are set by the Financial Action Task Force (FATF), an intergovernmental organization created by the G7 to align AML and CFT efforts. Those who work in DeFi need to understand and abide by these regulatory regimes, which are not meant to burden businesses but to prevent transactions with profound national security consequences such as terrorist attacks, human and narcotics trafficking.

DeFi and AML/CFT

Here is where DeFi is on shaky ground, as many of its developers are convinced that AML/CFT regulations do not apply to them. For instance, Uniswap argues that since it does not control the funds within its protocol, it is a software development studio and thus not liable under AML/CFT requirements. While I understand this position, it imperils our industry and sells it short.

First, if DeFi developers aren’t liable, who is? The more logical party may be liquidity providers (LPs). After all, it is their capital in each pool that is the counterparty to each trade. While crypto-native LPs tend to shrug off this responsibility, traditional institutions and their personally liable officers need to know they are not inadvertently facilitating illegal transactions before allocating funds on behalf of their investors. Institutional capital will surely be required to catalyze the next phase of DeFi’s growth, so the DeFi community must find a way to offer regulators and traditional banks a clear-cut solution.

Second, laws change as quickly as security risks. Consider the Patriot Act, which became law not two months after 9/11 and added AML/CFT protocols to the Bank Secrecy Act. President Franklin Roosevelt likewise ordered the internment of Japanese-Americans less than three months after the Pearl Harbor attack.

Governments rarely allow bureaucratic red tape or legal hurdles to get in the way when it comes to national security. DeFi has yet to have a critical moment of national security importance, but such a rite of passage is not inconceivable — particularly as DeFi is a threat to traditional finance. Just look at the $4.4 million paid in Bitcoin (BTC) by Colonial Pipeline to end a ransomware attack in May. A major geopolitical security incident linked to a DEX transaction may not be a matter of if but when.

Third, as an industry, we have moral obligations. You are likely familiar with the assertion that we are building a “safe, transparent and robust financial infrastructure that empowers users around the world.” These should not be mere words: Realizing this vision requires doing everything in our power to bar any financing that might be linked to black markets, terrorist financiers, drug cartels or other problematic entities.

Getting there will not be easy. Requiring Know Your Customer, for example, could drive traders to accept less compliant — and potentially less secure — DeFi protocols published by anonymous developers.

But practical and effective AML/CFT safeguards can be deployed at the protocol level. At my firm, we built our first DEX with an on-chain blacklist. That means any addresses flagged by the Office of Foreign Assets Control cannot trade on our DEX.

This safeguard has no impact on the user experience for everyday traders, most of whom are likely unaware of it, but it is highly effective in preventing problematic transactions. Developers can easily implement technical solutions like this whenever possible. But they are unlikely to do so as long as the leading DEX and de facto industry model says it is not liable.

DeFi will never go mainstream without accepting AML/CFT requirements. What’s more, if the DeFi community fails to regulate itself, governments will surely do the job for us — and with a much heavier hand. Just look at the infrastructure bill, which aims to hold DeFi developers responsible for users’ lack of tax compliance. Hastily written AML/CFT legislation for crypto could be even more debilitating.

Self-compliance is the moral thing to do, and it has the added benefit of ensuring the industry’s long-term survival. The alternative is waiting for the hammer of a much tougher forced compliance. The choice is ours.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Mark Lurie is the CEO of Shipyard Software Inc., which develops the Clipper exchange and is backed by Polychain, 0x Labs, 1inch Network and other members of the DeFi community. Mark is a former investor at FJLabs and Bessemer Venture Partners and has an MBA and BA from Harvard University.

DoJ’s crypto czar joins FinCEN in brand-new role: Why it matters

July 9, 2021 Coin Telegraph

AML

Michele Korver’s appointment to the U.S. Financial Crimes Enforcement Network promises to reduce illicit financial practices within the crypto space.

In her monthly Expert Take column, Selva Ozelli, an international tax attorney and CPA, covers the intersection between emerging technologies and sustainability, and provides the latest developments around taxes, AML/CFT regulations and legal issues affecting crypto and blockchain.

Talk about ending a stellar career at the United States Department of Justice with a bang. The DoJ’s first-ever “crypto czar,” Michele Korver, advised government attorneys, federal agents, the Department of the Treasury’s Financial Stability Oversight Council and the U.S. delegation to the Financial Action Task Force on cryptocurrency matters, and she developed cryptocurrency seizure and forfeiture policy and legislation. While she was wrapping up her last day on the job, an affiliate of the notorious “REvil” gang, which is best known for extorting $11 million in Bitcoin (BTC) from meat processor JBS after an attack on Memorial Day, executed the single biggest global ransomware attack on record to kick off the July 4 holiday weekend.

REvil’s supply chain-targeted ransomware attack successfully spread malware to thousands of businesses in at least 17 countries that outsourced their IT department to Kaseya, a privately held company based in Dublin, Ireland. It did so in one fell swoop, thanks to Kaseya’s compromised IT management software, VSA — resulting in a $70 million payday in Monero (XMR). If REvil is successful, they could perform a second attack on the businesses that chose to pay the Mondero demand. According to a recent report by Cybereason titled “Ransomware: The True Cost to Business,” 80% of businesses that choose to pay a ransomware demand are targeted a second time. REvil could then turn around and launder the illicit proceeds on dark web markets, as outlined in a report issued by Flashpoint and Chainalysis.

Criminals prefer using cryptocurrency tumblers/mixing services or privacy coins like Monero when paying for illicit goods and services in order to obscure the trail back to the fund’s original source, points out Korver, who co-authored an article titled “Surfing the First Wave of Cryptocurrency Money Laundering” in a journal issued by the DoJ. As she writes:

“Criminals follow common paths when placing, layering, and integrating their ill-gotten cryptocurrency. Those paths go through several primary domains, including institutional exchanges, P2P exchangers, mixing and tumbling services, and traditional banks. [...] Some of these primary domains, such as P2P exchangers and mixing services, appear to more directly cater to criminals in need of laundering cryptocurrency.”

For example, Korver explains: “To first possess cryptocurrency, criminals [including cyberattackers and ransom demanders] must set up wallets. Those wallets might be under their exclusive control [un-hosted wallets], or they might be custodial wallets hosted by a third-party service provider, such as an institutional exchange. Once in a wallet, funds can be sent to mixing services or gambling sites to obscure their historical trail. From there, the funds can be converted to fiat currency through exchanges, P2P exchangers, or kiosks. Sometimes, the funds will then be sent to bank accounts or cryptocurrency debit cards where they can be used to buy things or pay off debts. While this is the typical way in which the primary domains appear in the PLI process, criminals can use the domains in almost any way they want: Wallets can be used to mix funds; P2P exchangers can be used to integrate the funds; and kiosks can be used for layering. Criminals can also repeat the steps of the PLI process to further obfuscate the origin of the ill-gotten funds, though they incur additional costs and risk every time they repeat the cycle.”

In the context of ransomware payments, the number of which has increased by around 500% since the onset of the COVID-19 pandemic, Korver goes on to say that “Victims of ransomware attacks have relied on P2P exchangers. With the rise of ransomware as a standardized criminal enterprise, an increasing number of victims have been forced to purchase cryptocurrency in short order. It has been estimated that 9% of Bitcoin transactions are attributable to ransomware or some other form of cyber extortion payment. If it takes days or weeks to open a validated account at an institutional exchange, a P2P exchanger can offer cryptocurrency at a moment’s notice, and victims are willing to pay this speed premium. Victims have noted that ‘the processing times [at a registered institutional exchange] were far beyond the scope of the immediacy posed by the ransom’ and that a P2P exchanger was a better option for obtaining cryptocurrency in a hurry.”

Prior to Korver’s arrival at the Financial Crimes Enforcement Network, FinCEN authorities proposed a rule taking aim at transactions involving unhosted cryptocurrency wallets, which are generally software installed on a computer, phone or other device. The cryptocurrency in an unhosted wallet are controlled by an individual, who can receive, send and exchange their crypto assets person-to-person with other unhosted wallets, or on an exchange platform, without revealing their identity — making it more difficult to trace and scrutinize transactions for Anti-Money Laundering and Counter-Terrorist Financing compliance risks.

These concerns are shared by the Financial Action Task Force (FATF), the intergovernmental body responsible for setting AML standards. The updates proposed by the FAFT to its 2019 guidance expand the definition of a Virtual Asset Service Provider (VASP) to include several noncustodial cryptocurrency businesses, meaning they will be subject to AML/CFT regulations. Peer-to-peer decentralized exchanges/structures (except for rules that apply to all entities, like targeted financial sanctions) remain under review.

As cryptocurrencies — along with ransomware attacks — become more mainstream, Korver will advance FinCEN’s leadership role in the digital currency space by working across internal and external partners to bring forward strategic and innovative solutions to prevent and mitigate illicit financial practices and exploitation.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Selva Ozelli, Esq., CPA, is an international tax attorney and certified public accountant who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.

FinCEN lists cryptocurrencies as top AML and CFT priorities

July 1, 2021 Coin Telegraph

AML

FinCEN will soon issue regulations on how financial institutions should incorporate its priorities on crypto considerations into their AML programs.

The United States’ Financial Crimes Enforcement Network will continue to closely follow the cryptocurrency industry as one of its top priorities for combating crimes like money laundering.

FinCEN officially announced Thursday that “virtual currency considerations,” or operations involving cryptocurrencies like Bitcoin (BTC), will be among its top national priorities for countering terrorism financing and ensuring proper Anti-Money Laundering policies.

“The establishment of these priorities is intended to assist all covered institutions in their efforts to meet their obligations” under related laws and regulations, the regulator said. FinCEN elaborated that it will soon issue regulations to specify how financial institutions should incorporate these priorities into their AML programs.

“FinCEN recognizes that not every priority will be relevant to every covered institution, but each covered institution should, upon the effective date of future regulations to be promulgated in connection with these priorities, review and incorporate, as appropriate, each priority based on the institution’s broader risk-based AML program,” the authority noted.

Referring to cryptocurrencies as “convertible virtual currencies,” or CVCs, FinCEN pointed out that such assets became the “currency of preference in a wide variety of online illicit activity.” The authority then detailed a wide range of CVC uses by criminal actors, arguing that it is a “preferred form of payment” for buying illicit goods like ransomware tools or even advancing activities like “nuclear weapons ambitions.”

“For example, North Korea-linked cyber actors likely have stolen hundreds of millions of dollars’ worth of CVCs since 2019 through cyber operations against CVC service providers, laundered stolen CVC value through other CVC service providers and CVC wallets, and used the proceeds to help fund weapons of mass destruction and ballistic missile programs,” FinCEN wrote.

The news comes in line with recent remarks by Brian Nelson, the Treasury’s undersecretary for terrorism and financial intelligence. At a Senate hearing in late June, Nelson announced that he would push for implementation of the Anti-Money Laundering Act of 2020, including some “new regulations around cryptocurrency.”

FinCEN’s increasing attention to the crypto industry comes months after President Joe Biden froze FinCEN-backed rule to monitor crypto on self-hosted wallets as one of the first presidential actions in office. The authority introduced the proposal in late 2020 under former U.S. Treasury Secretary Mnuchin, planning to require all banks and money businesses to submit reports and verify the identity of customers involved in crypto wallet transactions.

Counter Terrorism Financing