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  • L Higgins and S Pettigrove

Congress examines crypto’s role in tackling illicit finance



Chairman French Hill's opening remarks encapsulated the need to address the potential misuse of cryptocurrencies by terrorist organisations and criminals alike. However, his comments also underscored the importance of debunking exaggerated claims about its prevalence in the grand scheme of global money laundering and terrorism financing:


Just yesterday, here in this room, Under Secretary Nelson testified that terrorists still prefer to use traditional finance rather than digital assets.

Users on X were quick to support this comment, noting the inherent traceability of blockchain-based systems:


Leading industry players such as TRM Labs, Coinbase, and Circle provided their insights into complexities surrounding crypto transactions and blockchain-related crime. The discussion notably emphasised the importance of contextualising crypto-related crime, acknowledging blockchains' unique characteristics compared to traditional financial systems.


One significant aspect highlighted during the hearing was the debate around the accountability of various actors within the crypto ecosystem. While some argued for stricter oversight, others, like Michael Mosier from Arktouros and a former acting head of FINCEN, cautioned against subjecting miners and validators to regulatory frameworks designed for traditional financial institutions. Mosier likened their role to that of internet service providers, advocating for a nuanced approach to their regulation.


A consensus appeared to emerge among lawmakers regarding the need for enhanced scrutiny of tools like mixers (such as Tornado Cash), often associated with illicit activities. However, there was a notable recognition that the majority of illicit finance still occurs through centralised exchanges and traditional finance, rather than decentralised crypto networks.


Some experts pointed to deficiencies in the US Anti-Money Laundering/Know-Your-Customer (AML/KYC) framework for digital currencies and the potential of digital identity systems as a solution.


Carole House, a senior fellow at the Atlantic Council, underscored the unique risk factors inherent in crypto due to its quick, borderless nature and lack of intermediaries. These very features that attract legitimate users also make it susceptible to exploitation by illicit actors.


Yaya Fanusie, from the Crypto Council for Innovation, highlighted the dilemma of balancing regulatory measures to curb illicit activities while preserving the innovative potential of crypto technologies. He emphasised the importance of a nuanced approach to regulation that recognizes both the risks and benefits associated with cryptocurrencies.


Overall, the hearing underscored the need for a multifaceted understanding of crypto-related crime, acknowledging its complexities and advocating for a balanced regulatory approach that also harnesses the benefits of the technology in mitigating illicit activities.


Written by Luke Higgins and Steven Pettigrove

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