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US Flags DeFi Services Used for Money Laundering

The US Treasury Department has warned about the risks of DeFi as criminals exploit loopholes in AML/CFT regulation

Photo by Sasun Bughdaryan / Unsplash / Blockhead

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Last week, the United States Treasury Department warned about using decentralised finance (DeFi) services by North Korean hackers, ransomware attackers, thieves, and fraudsters to transfer and launder illegal gains.

In a new report, the US Treasury Department stated that all decentralised financial transactions, including those involving virtual currencies, must adhere to anti-money laundering and sanctions regulations.

The 39-page report, which was asked for by President Biden's administration, says there are several risks with DeFi technology.

It has no clear definition but includes transactions between two or more people that take care of themselves and are based on the same blockchain technology that runs cryptocurrencies.

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People can give, borrow, and save money, generally through crypto assets and stablecoins, without going through banks or DeFi platforms.

The Treasury Department said that one of these risks is the misuse of the DeFi platform by "ransomware cybercriminals, thieves, scammers, and Democratic People's Republic of Korea (DPRK) cyber actors."

According to the Treasury's latest illicit finance risk assessment on DeFi, criminals are taking advantage of loopholes in AML/CFT regulation and enforcement in the United States and abroad, as well as in the underlying technology.

The Treasury's Under Secretary for Terrorism and Financial Intelligence, Brian Nelson, said, "Our assessment finds that illicit actors, including criminals, scammers, and North Korean cyber actors are using DeFi services in the process of laundering illicit funds."

Nelson further said businesses could utilise the assessment's results to guide risk management decisions and saying businesses could utilise the assessment's results to guide risk management decisions and to discourage criminals from accessing decentralised financial services.

The report, which comes at a time when the United States and other countries are debating how to regulate cryptocurrencies and virtual assets, calls for more stringent rules surrounding the technology and reminds businesses to comply with existing laws concerning money laundering and terrorist financing.

According to the research, many establishments and users must adhere to the current guidelines.

The study also revealed other risks, such as the absence of application of international AML/CFT standards and weak cybersecurity policies, as well as the possibility that DeFi services fall outside the scope of existing AML/CFT requirements.

According to the report, the United States should increase its anti-money laundering and countering the financing of terrorism (AML/CFT) monitoring, the private sector should be given more information about its DeFi duties, and any regulatory loopholes should be filled.

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"Capturing the potential benefits associated with DeFi services requires addressing these risks," said Nelson.

"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," he added.

The paper's results, which propose modifications to existing legislation, coincide with the Biden administration's consideration of a more comprehensive regulatory framework for cryptocurrencies and other payment methods that utilise blockchain technology.

The administration requested the US Securities and Exchange Commission (SEC) and other authorities "aggressively pursue investigations and enforcement actions against unlawful practises" back in September.


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