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Addressing Illicit Finance in Cryptocurrencies
The United States Treasury is advocating for Congressional support to provide it with the necessary tools to combat illicit finance associated with cryptocurrencies. This move is essential in addressing concerns related to terrorist financing and sanctions evasion. U.S. Treasury Deputy Secretary Adewale O. Adeyemo emphasized this point in written testimony submitted for a Senate Banking, Housing, and Urban Affairs Committee hearing.
Adeyemo highlighted the potential risks posed by the utilization of virtual assets by “terrorist groups and other malign actors.” He cited instances where groups such as al-Qaeda, the Islamic Revolutionary Guard Corps-Qods Force, Hamas, Palestinian Islamic Jihad, and state actors like Russia and North Korea have leveraged cryptocurrencies for their activities.
While acknowledging some success in combating illicit finance within the digital asset ecosystem, Adeyemo stressed the importance of establishing a robust enforcement regime to prevent such activities. He proposed three key areas of reform to address these concerns effectively.
Proposed Reforms
- Introduction of Secondary Sanctions Tool: Adeyemo recommended the implementation of a secondary sanctions tool targeting foreign digital asset providers that facilitate illicit finance. Unlike traditional financial institutions, crypto exchanges do not always rely on correspondent accounts, necessitating a tailored approach to regulation.
- Extension of Treasury Authorities: The proposal includes extending existing Treasury authorities to cover virtual asset service providers (VASPs) and crypto exchanges. These entities play a significant role in digital currency transactions and should be subject to appropriate regulation.
- Extraterritorial Reach: Adeyemo also suggested granting the Treasury authority to extend its jurisdiction extraterritorially in cases where digital asset entities threaten national security while exploiting the U.S. financial system.
While acknowledging that a majority of illicit financial activities tied to terrorism flow through conventional financial products and services, Adeyemo emphasized the increasing trend of actors concealing their identities and transferring resources using virtual currencies. This shift underscores the urgency of implementing effective regulatory measures.
The discourse around the role of cryptocurrencies in funding terrorism has gained traction among policymakers. Senator Elizabeth Warren has raised concerns about terrorist financing through crypto, although some data sources have disputed these claims. A report by Chainalysis indicated that crypto accounts for a minimal portion of terrorist financing, challenging exaggerated narratives on the issue.
Against this backdrop, Rep. French Hill underscored the importance of closing potential gaps that could be exploited by criminals and terrorists, despite the need to address reactionary claims about the extent of crypto’s involvement in such activities.
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