The undersecretary of the U.S. Treasury's Office of Terrorism and Financial Intelligence called on the international community for stronger cryptocurrency regulations to help protect the financial system and national security in a speech yesterday.
Citing Venezuela's recent introduction of the "petro" cryptocurrency as an example, Sigal Mandelker told the Securities Industry and Financial Markets Association Anti-Money Laundering and Financial Crimes Conference that rogue regimes, terrorists and others use cryptocurrencies to "exploit the financial system," "hide their ill-gotten gains" and "finance their illicit activities."
Mandleker went on to say that there is a lack of consistent international regulation of cryptocurrency "providers" with regard to anti-money laundering (AML) and combatting the financing of terrorism (CFT).
She told the conference:
"The lack of AML/CFT regulation of virtual currency providers worldwide greatly exacerbates virtual currency's illicit financing risks. Currently, we are one of the only major countries in the world, along with Japan and Australia, that regulate these activities for AML/CFT purposes. But we need many more countries to follow suit, and have made this a priority in our international outreach."
Mandleker further cautioned that a $110 million penalty levied at cryptocurrency exchange BTC-e last year for failing to register as a money transmitter was indicative of the Treasury's expectations and willingness to aggressively enforce regulation.
"The company lacked basic controls to prevent the use of its services for illicit purposes," the undersecretary said.
"As a result," she continued, "they emerged as one of the principal means by which cyber criminals around the world laundered the proceeds of their illicit activity, facilitating crimes such as computer hacking and ransomware, fraud, identity theft, tax refund schemes, public corruption and drug trafficking."
Mandleker encouraged regulators to "supercharge" their efforts to prevent financial crime and protect national security. She also stated that companies "must do more" against money laundering and the financing of terrorism in countries without regulation or with loosely enforced regulation.
"You play a key role in countering the threats that we face," the undersecretary said, referring to cryptocurrency companies such as exchanges. "The expectations you set for your customers, counterparties, and the countries in which you operate are critical to ensuring the transparency of the international financial system and keeping bad actors out."
U.S. Treasury image via Shutterstock