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Experts Offer Policy Recommendations to Counter Illicit Use of Cryptocurrency

Witnesses testified before the House Financial Services Committee on the growing use of cryptocurrencies for money laundering and other illicit finance.

At the hearing, market participants offered legislative and policy recommendations to strengthen law enforcement efforts to counter the trend.

  • Senior Counsel, Consensys Software Inc. William Hughes argued that permissionless blockchain ledgers allow for blockchain technology to trace transactions and called for policy solutions that "embrace the transparency of the blockchain and bolster the power of transaction analytics."
  • Partner at Arktouros Jane Khodarkovsky argued that blockchain technology can be used to trace supply chains, prevent against fraud and offer financial independence to vulnerable populations. She said that the United States should leverage its "robust" AML/CTF-related regulations to dismantle criminal organizations.
  • Chainalysis Co-founder & Chief Strategy Officer Jonathan Levin recommended the federal government (i) create a "path to compliance for the digital asset industry" to increase the number of touchpoints for U.S. law enforcement, (ii) collaborate with other foreign jurisdictions to prevent against illicit actors exploiting "gaps and weak points in the global ecosystem" and (iii) provide agencies with resources to address changes in how value is transferred over blockchains.
  • DELV Chief Legal Officer and Hogan Lovells U.S. LLP Senior Counsel Gregory C. Lisa argued that the United States should (i) counter illicit finance threats with a "reasonable, risk-based approach," (ii) enable agencies to increase their understanding of illicit finance by providing more funding, training and technological resources, (iii) increase the ability of crypto companies to share information with each other and law enforcement and (iv) view cryptocurrency as an "opportunity" to improve the existing BSA/AML regime using new technologies.
  • Dynamic Securities Analytics, Inc. President Alison Jimenez recommended that FinCEN (i) regularly publish the number of Suspicious Activity Reports ("SARs") relating to cryptocurrencies, (ii) include cryptocurrency as a financial product/instrument on SARs and (iii) categorize SARs filed by cryptocurrency-related institutions. Ms. Jimenez also called on legislators to focus on cryptocurrency miners, validators and mining/validating pools. She noted that proposed legislation "should not provide weaker oversight [on] stablecoins, given their growing use in illicit finance."

Primary Sources

  1. House Financial Services Committee Memorandum: Crypto Crime in Context: Breaking Down the Illicit Activity in Digital Assets
  2. House Financial Services Committee Hearing: Crypto Crime in Context: Breaking Down the Illicit Activity in Digital Assets
  3. Testimony of Bill Hughes, Senior Counsel & Director of Global Regulatory Matters at ConsenSys and previously Associate Deputy Attorney, General at the Department of Justice
  4. Testimony of Jane Khodarkovsky, Partner at Arktouros, previously Trial Attorney and Human Trafficking Finance Specialist with the U.S. Department of Justice’s Money Laundering and Asset Recovery Section
  5. Testimony of Jonathan Levin, Co-Founder & Chief Strategy Officer, Chainalysis
  6. Testimony of Gregory Lisa, Chief Legal Officer, DELV (f/k/a Element Finance, Inc.) and Senior Counsel, Hogan Lovells US LLP, Previously Interim Director, Office of Compliance and Enforcement at Financial Crimes Enforcement Network
  7. Testimony of Alison Jimenez, President, Dynamic Securities Analytics, Inc.

Tags

Regulated Activities
AML Compliance
Regulated Products
Digital Assets
Body of Law
Securities Law
Jurisdiction
US - Federal
Organization
US Congress