The commissioner of the Commodity Futures Trading Commission, Christy Goldsmith Romero, recently gave a speech on crypto in London which focused on the illicit financial use cases of digital assets.
Romero said that the technology “poses national security and other risks. Attracted by the allure of anonymity, crypto’s darkest corner facilitates the financing of terrorism, the drug trade, darknet markets, cyber gangs, money launderers, and malicious state-sponsored activity.”
“Cybercriminals send funds to DeFi protocols not because DeFi is useful for obscuring the flow of funds. In fact, quite the opposite is true, as unlike with centralized services, all activity is recorded on-chain,” Chainalysis said in its 2022 crime report.
That also leads to these crimes becoming “huge points of discussion on crypto Twitter and in other industry forums, with many tracking the funds publicly and sharing the addresses holding stolen funds. This can make it difficult for hackers to move stolen funds to a fiat off-ramp, which could be one reason they choose to leave the funds sitting in personal wallets.”
This, in conjunction with the way investigative agencies from the FBI to the Treasury Department to the IRS, have led to the tracking, arrests, and sanctions against criminals who have committed crypto crimes.
The Treasury’s Office of Foreign Assets Control has been sanctioning individuals who have worked with or for the groups since 2019.
On April 24, OFAC announced three more sanctions on individuals with ties to North Korea and the Lazarus group.
However, a Treasury review on decentralized finance earlier this month found that criminals are still using fiat currency to conduct illicit transactions.
Romero believes that anonymity is the key to crypto’s illegal use cases.
“It is essential for governments and the industry to address that which makes crypto so attractive to illicit finance—the allure of anonymity. While the public blockchain can provide some traceability and transparency, the use of mixers and technology designed to enhance anonymity presents a substantial risk,” she said.
She cited the Chainaysis report that found $3.8 billion was stolen in crypto hacks in 2022.
In comparison, according to the FBI’s Internet Crime Report from 2022, $10.3 billion was lost in US dollars last year from cybercrimes.
Dave Weisberger, CEO of CoinRoutes, told Blockworks via email, “Digital assets already are easier for law enforcement to trace than traditional assets, such as suitcases full of cash or boxes full of pre-funded debit cards. This is well known to the FBI, in particular. In short, there needs to be a balance here that ultimately works to protect financial privacy by way of digital assets while also working to stop illicit transactions.”
At the end of Romero’s speech, she urged both the private sector and international governments to coordinate because digital assets can transcend borders, and Romero said that there can be “no safe passage” for illicit finances in order to keep the global financial system safe.
“There are many reasonable and effective ways that the digital asset industry can work together with regulators and lawmakers to help stop wrongdoing, but, nevertheless, we can’t lose sight of our broader objectives in society. This means protecting privacy as well as empowering people with the right to choose, including when it comes to choosing digital assets for a whole range of functions,” Brent Xu, CEO of Umee, told Blockworks.
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