The report was made by the United States Department of the Treasury. Actions are recommended to mitigate the criminal effects. In 2022, the firm Chainalysis drew a similar conclusion.
A report from the United States Department of the Treasury highlights that criminal activity dedicated to money laundering and financing terrorism is in favor of fiat money before cryptocurrencies.
This is how the Treasury points it out, in a passage of the study:
“This risk assessment recognizes that most money laundering, terrorist financing, and proliferation financing by volume and value of transactions occurs in fiat currency or otherwise outside the virtual asset ecosystem via more traditional methods.”
The Treasury Report Highlights
The report considers the vulnerabilities that allow the use of DeFi services for criminal purposes. In this field, the analysis points out, activities such as ransomware attacks, theft, fraud and scams, drug trafficking, and financing of the proliferation of illegal activities take place.
The assessment recommends “enhancing the U.S. AML/CFT regime as applied to DeFi services by closing any identified gaps in the BSA to the extent that they allow certain DeFi services to fall outside the scope of the BSA’s definition of financial institutions.”
The Treasury asks to reinforce the supervision of activities carried out with virtual assets. In the same way, the control of anti-money laundering and terrorist financing protocols, such as know-your-client (KYC).
It also points out recommendations for regulators, who “should conduct additional outreach to industry to further explain how applicable regulations apply to DeFi services, in line with previously issued regulations and guidance.” Regulators should also “consider taking additional regulatory actions,”, as well as monitoring “any changes in the DeFi ecosystem that could affect illicit finance risks or the application of AML/CFT obligations to entities in the space.” These recommendations could be implemented “through research and engagement with the private sector.”
Chainalysis Also Reviewed Criminal Preference
In January 2022, the Chainalysis firm presented a report that reached a conclusion similar to that of the US Department of the Treasury. Contrary to an argument used against cryptocurrencies, according to which they are used for various criminal activities, the report indicates that it is not a preferred path for criminals, because it is easier to trace their activity.
According to the report by Chainalysis, “the biggest difference between fiat and cryptocurrency-based money laundering is that, due to the inherent transparency of Blockchains, we can more easily trace how criminals move cryptocurrency between wallets and services in their efforts to convert their funds into cash.”
Back then, Chainalysis was already putting a spotlight on vulnerabilities in decentralized finance, explaining that cybercriminals are targeting “their ill-gotten funds to a service where they can be kept safe from the authorities and eventually converted to cash.”
Thus, money laundering is understood to underpin all other forms of cryptocurrency-based crime. In this sense, since there is no way to access the funds, the incentive to commit crimes that involve cryptocurrencies, to begin with, disappears.
By Audy Castaneda
