Treasury lays out action items for fighting digital asset crime

Accounting

The U.S. Treasury Department, in response to developments in the digital asset space, said it is committing to a coordinated interagency action plan for mitigating the illicit financial and national security risks associated with digital assets. The plan was outlined in a recent report, released as part of the March’s “Executive Order on Ensuring Responsible Development of Digital Assets,” which required the department to draft action items that could aid enforcement. 

The report lays out “seven priority and supporting actions to which the U.S. government is committed.”

The first is to continue and enhance the monitoring of emerging risks, particularly by leveraging the government’s vast stores of data gathered from filings on regulations like the Bank Secrecy Act. On this note, the Treasury will also accelerate training on blockchain analytics and other emerging technologies, as well as share its expertise with other departments, such as Homeland Security. Further, it will publish a risk assessment by February 24, 2023, on the money laundering and terrorist financing risks related to decentralized finance platforms, followed by a risk assessment by July 2023 on the money laundering and terrorist financing risks related to non-fungible tokens.

The second is to improve enforcement of global anti-money laundering/counter-terrorist financing rules. Beyond continuing work that is already being done, the report said the department will also lead efforts at international forums such as the G7 to ensure proper controls are in place globally; partner with other G7 countries to implement current standards; share information with partners to support international investigations involving digital assets; and engaging bilaterally with countries that have high illicit financing risks related to virtual assets. 

The third mostly involves continuing work already being done to monitor the sector and ensure its regulatory structure, especially as it pertains to the BSA, remains relevant and effective.

The fourth is to boost authorities’ oversight and supervision of virtual asset activities. Beyond continuing current enforcement actions, the Treasury will strengthen the Financial Crimes Enforcement Network (FinCEN)’s existing enforcement function to harmonize better with current AML/CTF requirements, particular through examinations and related investigations and actions for compliance and enforcement.

The fifth priority is to strengthen accountability for cyber criminals and other illicit actors. This includes using sanctions and other special measures to fight ransomware users and other bad actors. Sanction designations in particular, said the report, are well positioned to expose the role that virtual assets play in facilitating a wide range of malicious activity. The Treasury will also work with Congress to get more funding to support these actions.

The sixth is to deepen engagement with private sector partners. This deeper engagement will also involve helping financial institutions improve their ability to identify threats and vulnerabilities associated with criminal activity in the virtual asset space. This help could include encouraging them to use the range of available data and toolsets, including blockchain analytics tools, to include virtual asset‑specific transaction monitoring services; open‑source information; commercial data; and other available tools and data that would increase the efficacy of their AML/CFT programs. Such tools could also include mechanisms to consolidate fiat currency and virtual asset transaction information.

The seventh and final item is to support U.S. leadership in financial and payments technology. This means considering different ways the payments infrastructure could be improved, continuing to work with interagency partners and others, and funding research and development into technological foundations for future digital financial and payments systems, while supporting various system solutions to address networking, security, privacy, and resiliency challenges of existing financial and payment systems. 

The plan is one of three reports issued by the Treasury Department today on the topic of digital assets. The first concerns payment systems and the possibility of a U.S. central bank digital currency. The second is about monitoring potential consumer and investor risks and educating the general public about them.

“Innovation is one of the hallmarks of a vibrant financial system and economy.  But as we have learned painfully from the past, innovation without appropriately addressing the impact of these developments can result in significant disruptions and harm to the financial system and individuals, especially our more vulnerable populations,” said Treasury Secretary Janet Yellen in a statement. “The reports clearly identify the real challenges and risks of digital assets used for financial services.  At the same time, if these risks are mitigated, digital assets and other emerging technologies could offer significant opportunities. These reports and their recommendations provide a strong foundation for policymakers as we work to realize the potential benefits of digital assets and to mitigate and minimize the risks.”

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