US Treasury Warning About Risks Of DeFi Used For Fraud And Money Laundering

Key Points:

• The expanding DeFi harms US national security and requires more regulation and enforcement against money laundering, according to the US Treasury Department.
• According to the Treasury, North Korean thieves, fraudsters, ransomware cyber criminals, and actors are utilizing DeFi to launder illegal gains.
• Treasury also said the federal government needs to strengthen its present market monitoring and enforcement.

The United States Department of Treasury issued the 2023 DeFi Illicit Finance Risk Assessment, the world’s first illegal finance risk assessment of decentralized finance (DeFi).

According to the US Department of Treasury’s initial examination of the technology’s risks, DeFi services that aren’t compliant with anti-money laundering (AML) and terrorist financing standards constitute the most substantial current illicit finance risk in that section of the crypto industry.

While there is no widely accepted definition of DeFi at the moment, the term broadly refers to virtual asset protocols and services that purport to allow some form of automated peer-to-peer transaction, frequently through the use of self-executing code known as smart contracts based on blockchain technology. According to the evaluation, this word is widely used loosely by the private sector, typically for services that are not operationally decentralized.

The Treasury stated in an anticipated risk assessment issued Thursday that thieves, fraudsters, ransomware cyber criminals, and actors for the Democratic People’s Republic of Korea (DPRK) are utilizing DeFi to launder illegal earnings.

Although risk assessments are generally used to determine the scale of a problem, the report also provides suggestions for US government initiatives to reduce the illicit financing concerns connected with DeFi services. The Treasury advises a study of potential modifications to US AML standards and counter-terrorism financing (CFT) laws as they apply to DeFi services. It also requests comments from the commercial sector to help guide the next stages.

Among its proposals, the Treasury Department said that the federal government should strengthen its current market monitoring and enforcement by forcing platforms to follow the same anti-money-laundering standards as banks and other financial organizations.

Brian E. Nelson, Under Secretary of the Treasury for Terrorist and Financial Intelligence, stated:

“The private sector should use the findings of this assessment to inform their own risk mitigation strategies and to take clear steps, in line with AML/CFT regulations and sanctions obligations, to prevent illicit actors from abusing DeFi services.”

The study builds on the work stated in President Joe Biden’s executive order on cryptocurrency issued last year, and it is the world’s first of its type.

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Harold

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