Decentralized Cryptocurrency Markets Threaten U.S. Security, Treasury Says
The U.S. Treasury Department has issued a warning about the growing decentralized cryptocurrency market, stating that it poses a threat to U.S. national security and requires increased oversight and enforcement against money laundering. In a recent Treasury report assessing the risks of decentralized finance (DeFi) markets, the foundation is laid for stricter regulations and punitive measures by federal agencies.
DeFi platforms allow cryptocurrency investors to transact with each other online through software, without the need for a central intermediary to oversee transactions. However, this lack of intermediaries means that regulators currently have limited visibility into DeFi transactions, creating opportunities for ransomware hackers, rogue states, and other national security threats to move money globally without detection, thus facilitating the financing of their operations, as stated in the Treasury Department report.
Brian Nelson, Treasury's undersecretary for terrorism and financial intelligence, highlighted that illicit actors, including criminals, scammers, and North Korean cyber actors, are utilizing DeFi services for laundering illicit funds. Addressing these risks is essential to capture the potential benefits associated with DeFi services, Nelson added.
The Treasury report outlines the plans of the department to bring the decentralized cryptocurrency market under increased federal oversight, including suggesting that platforms that do not establish sufficient vetting policies may face enforcement action. The private sector is encouraged to use the findings of the Treasury Department to inform their own risk mitigation strategies, with companies urged to take clear steps in line with regulations to counter money laundering, terrorist financing, and sanctions evasion in order to prevent abuse of DeFi services.
The Treasury Department's recommendations include strengthening the existing supervision and enforcement of the market by requiring DeFi platforms to adhere to the same anti-money laundering rules as traditional banks and financial institutions. It also calls for expanding regulatory powers of federal agencies to cover potential gaps in oversight and collaborating with other governments to establish international standards for the decentralized cryptocurrency market.