The FTX debacle is a tailwind for many crypto naysayers. Senator Elizabeth Warren is trying to push through a bipartisan approach to money laundering in the crypto industry in the US Congress. The legislation serves to better protect the national security of the United States.
Warren is a former Harvard law professor and expert on consumer protection and economic inequality. According to their own statement, their efforts are aimed at creating equal conditions. Crypto companies must be forced to comply with the same rules that apply to banks and traditional businesses. Warren’s new bill, called the Digital Asset Anti-Money Laundering Act, aims to bring the crypto ecosystem into line with the existing anti-money laundering regime in the global financial system.
The legislation would direct the Financial Crimes Enforcement Network (FinCEN) of the Treasury Department to designate digital asset providers (custodians), miners, validators and NFT marketplaces as money service providers. This will in turn extend the responsibilities of the Bank Secrecy Act to the crypto industry, including customer identification (KYC) requirements. FinCEN is also said to keep records, monitor markets and produce reports on digital asset transactions involving “non-hosted” wallets. Financial institutions would be prohibited from interacting with services that mix cryptocurrencies and obscure their origins.
The Ministry of Finance warned earlier this year that ransomware hackers, drug dealers and fraudsters are using digital assets to launder illegal proceeds. In addition, US officials claim that North Korea, Iran, Russia and other countries are using cryptocurrencies to launder money and even circumvent sanctions. However, they could not provide any proof or even an amount.
Republican Roger Marshall continued to swing the terror club, pointing to sensible reforms after the September 11, 2001 terrorist attacks that apparently helped banks keep bad actors out of the U.S. financial market. Applying Elizabeth Warren’s policies to crypto exchanges will prevent digital assets from being misused to finance illegal activities without restricting access for law-abiding US citizens.
threat to national security
Even before the FTX collapse, the Treasury was focused on feared national security risks from relatively unregulated digital currency exchanges. In August, authorities cracked down on Tornado Cash, a virtual currency mixer. The decentralized currency mixer has been accused of laundering more than $7 billion in virtual currencies since 2019.
The Treasury Department said Tornado Cash is attractive to cybercrime launderers, including the Lazarus Group, a North Korean-sponsored hacking group. The company’s appeal to cybercriminals was that it could move digital assets anonymously, obscuring the origin and destination of transactions and hiding the parties involved. The provisions of the new legislation include the following points – none of which, ironically, would have prevented the FTX incident:
- Directs FinCEN to finalize and implement a regulation proposed in 2020 that would require banks and money services firms to verify the identity of customers and counterparties (KYC).
- Prohibiting banks and other financial institutions from using or trading anonymity-enhancing technologies, such as digital asset mixers, and prohibiting banks and other financial institutions from trading in digital assets that have used these technologies.
- Expanding bank secrecy provisions on foreign bank account reporting for digital assets by requiring Americans dealing with offshore accounts in digital assets in excess of $10,000 to file a report with the IRS.
- Instruct regulators to strengthen compliance with the Bank Secrecy Act by establishing a compliance audit process and controlling money service companies.
- Crack down on ATMs with digital assets by ensuring operators and managers submit and update the physical addresses of their kiosks.