US Treasury Takes Aim At Crypto-Linked Illicit Finance: Is An Increased Crackdown On The Horizon?

In a recent Bloomberg report, it was revealed that the US Treasury Department is urging lawmakers to grant it additional enforcement powers in its fight against foreign providers of cryptocurrency services. The primary objective behind this request is to safeguard national security interests.

Growing Hurdles In Tracing Illicit Crypto Transactions

Deputy Secretary Adewale O. Adeyemo, in his written testimony before a Senate hearing, highlighted the “growing challenge” of identifying and tracking individuals involved in illicit activities who allegedly exploit the anonymity afforded by crypto assets. 

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Adeyemo stressed that “malign actors,” including terrorists, are continually adapting their methods to circumvent measures implemented to cut off their access to traditional financial systems.

Adeyemo cited instances of Iran’s Quds Force, a part of the Islamic Revolutionary Guard Corps, using crypto to transfer funds to militant groups such as Hamas and the Palestinian Islamic Jihad in Gaza. He also raised concerns about the increasing involvement of state actors like North Korea and Russia in utilizing digital assets.

To combat these threats, Adeyemo urges lawmakers to authorize the implementation of secondary sanctions targeting foreign digital asset providers that facilitate illicit finance. 

This proposed tool aims to increase the Treasury Department’s ability to adapt its targeting strategies in response to “technological changes” that have made traditional payment systems reportedly less effective against digital assets.

The Treasury Department is also seeking explicit jurisdiction over prominent digital-asset players, including cryptocurrency exchanges, and the authority to take action against overseas-based crypto platforms that exploit the US financial system while posing a threat to national security.

Adeyemo asserted that without the “necessary tools” provided by congressional action, illicit actors’ use of virtual assets will likely grow unchecked. 

Battle Against Illicit Finance

Despite claims by regulators and lawmakers that the crypto industry facilitates illicit finance and terrorism-related activities, there have been notable instances of the industry working with authorities to combat such issues.

Throughout 2023 and part of 2024, stablecoin issuer Tether worked with US authorities and the OKX cryptocurrency exchange to freeze $225 million of its stablecoin linked to a criminal syndicate. 

Tether CEO Paolo Ardoino defended the company’s operations by emphasizing the transparency and traceability of transactions on public blockchains, making USDT, the company’s stablecoin, an “impractical choice” for conducting illicit activities.

Additionally, at a global conference on criminal finance and cryptocurrencies hosted by Europol, it was highlighted that increasing understanding and capabilities in the digital arena is crucial for combating physical and virtual organized crime and money laundering. 

The conference emphasized the pivotal role of cryptocurrencies in assisting international anti-crime agencies in preventing criminal activities before they occur.

In the United States, Senator Cynthia Lummis has consistently advocated for the crypto industry, asserting that crypto assets are not the problem but rather the bad actors within the industry. 

Lummis emphasized in a video statement that judging an entire emerging industry based on incorrect data would be a mistake, emphasizing the need to distinguish between the technology itself and those who misuse it.

While regulators and lawmakers continue to scrutinize the industry, these efforts demonstrate the commitment to compliance, preventing illicit activities, and fostering a safer ecosystem.

Establishing an ongoing collaboration between regulators, law enforcement, and crypto companies is paramount to achieving a balance between innovation and security. It is critical to avoid stifling innovation and imposing blanket exclusions that prevent the industry and its companies from offering their services in the United States or any other jurisdiction.

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Featured image from Shutterstock, chart from TradingView.com

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