Decentralized financial transactions, including those done with virtual currencies, need to comply with anti-money laundering and sanctions laws, the US Treasury Department said in a new report.
(Bloomberg) — Decentralized financial transactions, including those done with virtual currencies, need to comply with anti-money laundering and sanctions laws, the US Treasury Department said in a new report.
The 39-page report, which was commissioned by the Biden administration, concludes there are several risks associated with DeFi technology, which has no exact definition but includes self-executing transactions between two or more people based on the same blockchain technology that underpins cryptocurrencies. Those risks include abuse by “ransomware cybercriminals, thieves, scammers, and Democratic People’s Republic of Korea (DPRK) cyber actors,” according to Treasury.
The report, which comes as the US and other countries are grappling with how they should regulate cryptocurrencies and virtual assets, recommends stricter rules around the technology and advises firms that they are required to follow already-established laws concerning money laundering and terrorist financing. Many institutions and users don’t follow the existing regulations, the report says.
“Capturing the potential benefits associated with DeFi services requires addressing these risks,” Brian Nelson, the Treasury undersecretary for Terrorism and Financial Intelligence, said in a statement. “The private sector should use the findings of this assessment to inform their own risk mitigation strategies and to take clear steps, in line with AML/CFT regulations and sanctions obligations, to prevent illicit actors from abusing DeFi services.”
The report’s findings, which recommend some changes to the law, come as the Biden administration is considering a broader regulatory framework for cryptocurrencies and other forms of payment conducted with blockchain technology. The administration in September called on the Securities and Exchange Commission and other regulators to “aggressively pursue investigations and enforcement actions against unlawful practices.”
READ MORE: White House Calls on US Regulators to Continue Crypto Crackdown
Nelson is scheduled to give public remarks about the report Thursday at 10:30 am Eastern time during a fireside chat at the Association of Certified Anti-Money Laundering Specialists.
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