The U.S. Treasury Department wants to crack down on jurisdictional regulatory arbitrage.<\/p>\n
The United States Treasury Department believes unregulated stablecoins pose a significant threat to U.S. national security.<\/p>\n
Speaking during the Consensus conference on May 29, Brian Nelson, the U.S. Department of the Treasury\u2019s undersecretary for terrorism and financial intelligence, warned<\/a> that unregulated stablecoins are attracting increasing adoption from North Korean cybercriminals, ransomware operators, and even terrorist organizations.<\/p>\n \u201cWe\u2019ve been really focused on the risks around stablecoins,\u201d Nelson said. \u201cWe also have observed the increased use of stablecoins, notably Tether\u2019s USDT, by sanctioned persons, scammers, and terrorist groups.\u201d<\/p>\n \u201cAll of this emphasizes\u2026 how significant a national security risk some of this activity poses to the United States,\u201d Nelson added.<\/p>\n Nelson\u2019s comments come amid increasing efforts on the part of U.S. regulatory agencies and certain Democratic lawmakers<\/a> to characterize digital assets as a popular instrument for fundraising and sanctions evasion on the part of transnational crime syndicates, terrorist groups, and other nefarious actors<\/a>.<\/p>\n However, on-chain analytics have repeatedly shown that cryptocurrencies represent<\/a> a small share of terrorist fundraising relative to other sources, while reports<\/a> published by the U.S. Treasury Department in February acknowledge that cash remains the dominant instrument used in money laundering activities by far.<\/p>\n Nelson asserted that bad actors are increasingly seeking out digital asset products in jurisdictions with weak anti-money laundering and combating the financing of terrorism (AML\/CFT) and sanctions compliance programs.<\/p>\n He asserted that criminals seek to take advantage of jurisdictions with \u201cvery little or no regulatory infrastructure around managing illicit finance,\u201d adding that some international virtual asset service providers (VASPs) are \u201coutright failing to meet their compliance obligations.\u201d<\/p>\n To combat these risks, Nelson said the Treasury Department wants to create an authority tasked with preventing U.S.-based financial institutions and persons from engaging with VASPs in jurisdictions lacking meaningful AML\/CFT compliance regimes.<\/p>\n He added that the department also wants to work with Congress to mandate that U.S.-backed stablecoins are “subject to OFAC sanctions.\u201d<\/p>\n Nelson\u2019s comments also come as the U.S. Treasury Department is devoting increasing resources to bringing enforcement actions against crypto-mixing protocols, which are used to bolster transactional privacy on-chain.<\/p>\n In August 2022, the Treasury Department took the unprecedented action of sanctioning<\/a> Tornado Cash \u2014 then the leading Ethereum privacy protocol \u2014 by including its smart contracts and associated wallets on the Office of Foreign Assets Control\u2019s (OFAC) list of Specially Designated Nationals.<\/p>\n The action came in response to Lazarus Group, the North Korean state-sponsored hacking organization, using Tornado Cash to obscure the flow of stolen assets.<\/p>\n The department similarly sanctioned<\/a> the Sinbad.io virtual currency mixer in November and charged<\/a> the co-founders of the Samourai Wallet mixing service in April.<\/p>\n\u201cJurisdictional arbitrage\u201d<\/h2>\n
Crackdown on crypto mixers<\/h2>\n
Privacy vs anonymity<\/h2>\n