Biden Administration Vows Crackdown on Illicit CryptoOfficials: We Will 'Track, Trace and Counter Illicit Cryptocurrency Use'
Cryptocurrency's reputation as ransomware hackers' favorite payoff tool is leading the Biden administration to signal a stepped-up federal response to illicit use of digital assets.
The White House coordinated a Friday release of a slew of recommendations from federal agencies whose development was mandated by President Joe Biden's March executive order calling for "responsible financial innovation" in the blockchain world.
Pseudo-anonymous digital currencies such as Bitcoin and Ethereum - especially when combined with anonymity-enhancing decentralized tools such as currency mixers - have facilitated an explosion in ransomware by money-chasing hackers. Among them are North Korean state-sponsored groups such as Lazarus, which has also directly rampaged through cryptocurrency platforms themselves to obtain stolen funds (see: Feds Double Reward for Tips on North Korean-Backed Actors).
Federal agencies are looking for ways to "track, trace and counter illicit cryptocurrency use" and redouble U.S. sanctions enforcement, said Brian Deese, director of the National Economic Council, in a joint statement with U.S. national security adviser Jake Sullivan.
Federal prosecutors have already unleashed a series of prosecutions against cryptocurrency fraudsters, extraditing an accused Ryuk money launderer and clawing back $500,000 of stolen cryptocurrency from North Korea. The Department of the Treasury prohibited U.S. citizens from using cryptocurrency mixer Tornado Cash through sanctions imposed in August after determining that the service repeatedly failed to stop money laundering.
"We are laying the groundwork for a thoughtful, comprehensive approach to mitigating digital assets' acute risks and - where proven - harnessing their benefits," Deese and Sullivan said.
Cybercriminals behind the top ransomware variants routinely cash out stolen cryptocurrency via what the government calls "virtual asset service providers" - essentially trading platforms for cryptocurrency. Hackers use services outside the U.S. that have weak or nonexistent anti-money laundering controls to cash out ransomware proceeds. While services that operate as money transmitters in the U.S. have regulatory reporting obligations, some don't comply, making it tougher for regulators and law enforcement to trace illicit funds.
Among the recommendations transmitted to the White House by the Department of Justice is a proposal for legislation clarifying that peer-to-peer cryptocurrency platforms fall under federal anti-money laundering statutes. All virtual asset service providers should also come under a requirement preventing them from tipping off subjects of criminal investigations about federal subpoenas, Justice says.
The department recently launched a training and technical expertise network for prosecutors dubbed the Digital Asset Coordinator Network, led by the National Cryptocurrency Enforcement Team. The network "will be a crucial part" of stepped-up prosecutions against crypto crimes, Justice told the White House.
Treasury says it may revisit a proposed regulation it withdrew in September 2021 to lower the $3,000 Bank Secrecy Act threshold at which money services businesses must keep records and verify the identity of customers in transactions involving virtual wallets hosted by a third party.
International anti-money laundering standards have "significant weaknesses" that Treasury will address through global forums and bilateral engagement, the department says. The U.S. and Israel will also co-lead a project on the financing of ransomware trends and typologies to create awareness around ransomware payments and laundering of those funds, Treasury says.
The Treasury Department is expected to publish an illicit finance risk assessment on decentralized finance by the end of February 2023 and one on NFTs by the end of July 2023. It will also set up a comment-gathering mechanism to share information on existing obligations and illicit financing risks associated with digital assets, as well as solicit comment from the private sector.
The Federal Reserve has studied the possibility of offering digital currency without committing for or against one particular kind. Treasury says it will further consider national security implications of a digital dollar and support foreign countries pursuing a digital fiat currency, especially with an eye to ensuring that money laundering risks are assuaged.