The US Commodity Futures Trading Commission (CFTC) is worried that identity concerns in crypto could pose a national security risk.
CFTC commissioner Christy Goldsmith Romero voiced the concerns during the City Week conference in London on 25 April.
Romero said that the anonymity of crypto is making the asset class "attractive" for illicit finance, adding that digital assets are being used increasingly to commit cybercrimes.
"It is essential for governments and the industry to address that which makes crypto so attractive to illicit finance—the allure of anonymity. While the public blockchain can provide some traceability and transparency, the use of mixers and technology designed to enhance anonymity presents a substantial risk,” she said.
Victims of such crimes are often from critical infrastructure or public sector facilities, the commissioner added.
“Fraud is a hallmark of digital asset markets, the human toll of which may be overlooked,” Romero said.
She went on to call on the private sector and international governments to coordinate as digital assets can transcend borders. There can be "no safe passage" for illicit finances in order to keep the global financial system safe, Romero said.
“Congress is already considering new laws on addressing anonymity and digital identity,” she said.
One particular area of concern was crypto mixers including Tornado Cash, which was sanctioned by the US due to hackers being linked to the North Korean state-sponsored group Lazarus Group.
Read more: Was the Tornado Cash Team Really Just Writing Code?
“It’s possible for all crypto companies to distance themselves from mixers and anonymity-enhancing technology while still providing customers financial privacy,” Romero said.
Although the CFTC holds an opposing view to the Securities and Exchange Commission (SEC) in terms of whether Ethereum is a security or a commodity, the commission holds a similar reserved stance on digital assets as its securities counterpart.
Earlier this month, the head of the CFTC said that activity on the exchange Binance constituted a "very clear example of evasion," calling for swift and forceful action from American authorities.
Read more: Aggressive, Expanded Scrutiny Leave Crypto Firms in Limbo
CFTC chairman Rostin Behnam said regulators needed to step in aggressively after the US authorities sued Binance, accusing the largest cryptocurrency exchange in the world of breaking regulations meant to curb unlawful activities.
"This seemed to be a pretty clear case of evasion and something that we needed to step in aggressively with and do it as quickly as possible because this was an ongoing fraud - going back to 2019 - and ongoing violation of the Commodity Exchange Act."
Read more: The CFTC's Binance Case as a Roadmap
Behnam said that Binance was a global consortium of several companies and noted, "not having a headquarters, not having a location is not going to prevent the CFTC from coming after you."
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