US Treasury Requests Comment on Crypto Illicit Funding Risks

US Treasury Requests Comment on Crypto Illicit Funding Risks


The US Treasury is seeking public comment on potential illicit financing and the national security risks posed by the use of digital assets, as part of the agency’s mandate under President Biden’s executive order in March to study cryptocurrency development.

The request for comment, which was released on Monday, also asks the public to submit suggestions for mitigating these risks by the November 3 deadline.

The Treasury Department, in a copy of the document requesting comment on the Federal Register’s website, said that encryption has been used in sophisticated financial networks and activities associated with cybercrime, including through ransomware. The increasing use of digital assets has increased the risks of crimes such as money laundering, terrorist financing, fraud, theft and corruption, according to the document.

Public input will help the agency establish controls to hold bad actors accountable and identify potential loopholes in current implementation, Brian Nelson, Treasury Under Secretary for Terrorism and Financial Intelligence, said in a statement Monday.

Several stakeholders, including crypto industry advocates, members of civil society, traditional financial institutions and crypto firms, are expected to provide their comments, according to Alex Zerdin, director of fintech and risk advisory firm Capitol Peak Strategies LLC.

“this is [commentary process] Zerdin, a former Treasury official in the Obama and Trump administrations, explains that the Treasury takes public engagement seriously…from a perspective of risk, rather than a perspective of risk and opportunity. Ultimately, he added, it is up to Treasury to decide how to incorporate the feedback it receives into its own policy-making process.

The request for comment comes as the cryptocurrency market is experiencing another wave of volatility, adding to calls for more regulatory oversight. Bitcoin, the world’s largest cryptocurrency by market capitalization, traded at $18,776 earlier on Monday, down 4.8% from its levels late Sunday, before recently retracing above $19,000.

The Treasury is expected to outline the risks it believes cryptocurrencies can pose to consumers and the financial system in a series of reports set to become public this month, the Wall Street Journal previously reported.

The reports, completed by the Treasury Department and sent to the White House, will feature the Treasury Department’s analysis of the cryptocurrency markets, each focusing on one of four topics — the payment system, consumer protection, illicit financing, and financial stability — but it is unlikely to do so. It offers many policy specific prescriptions.

President Biden in March ordered the digital asset executive to prepare reports, and asked other agencies to also produce analytics.

Last Friday, the Biden administration released a broader set of frameworks from various agencies regarding regulatory approaches to developing the cryptocurrency ecosystem. The Department of Justice also said it has hired more than 150 federal prosecutors across the country to bolster law enforcement efforts to combat the rise in crime linked to the use of cryptocurrencies such as bitcoin.

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write to Mengqi Sun at mengqi.sun@wsj.com

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