Crypto Crime in Context Part II: Examining Approaches to Combat Illicit Activity (EventID=116861)

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Connect with the House Financial Services Committee Get the latest news: https://democrats-financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinanci... Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Thursday, February 15, 2024, at 2:00 p.m. (ET) Subcommittee on Digital Assets, Financial Technology and Inclusion Chair Congressman Hill and Ranking Member Congressman Lynch will hold a hearing entitled, “Crypto Crime in Context Part II: Examining Approaches to Combat Illicit Activity." ___________________________________ Witnesses for this one-panel hearing will be: • Caroline Hill, Senior Director of Global Policy and Regulatory Strategy at Circle • Michael Mosier, Co-Founder and Partner, Arktouros • Grant Rabenn, Director, Financial Crimes Legal, Coinbase • Ari Redbord, Global Head of Policy and Government Affairs, TRM Labs • Carole Noelle House, Senior Fellow, Atlantic Council; Executive in Residence, Terranet Ventures ___________________________________ Overview of the Illicit Finance Landscape in Digital Assets Recent Developments According to the Department of Treasury (Treasury)’s 2024 National Money Laundering Risk Assessment, “the use of virtual assets for money laundering remains far below that of fiat currency and more traditional methods.” Treasury reported increased instances of bad actors seeking to use digital wallets, mixers, digital asset trading platforms, and other methods to transact and obfuscate the digital asset transactions. However, Treasury concluded that “the use of anonymity-enhancing technologies and techniques for financial transactions by terrorist groups has been limited so far.” Considerable focus has been placed on terrorists’ use of digital assets to fund their operations. However, the evidence suggests it still pales in comparison to the use of traditional financial assets by terrorists. Indeed, Treasury’s 2022 National Terrorist Financing Risk Assessment concluded that “the vast majority of terrorist funds raised in the United States still move through banks and money transmitters or are in cash.” In addition to terrorists’ use of digital assets, there has been considerable attention on the connection between digital assets and fraud, including pig butchering and ransomware. Currently, the most common ransomware-related payment method in reported transactions is bitcoin. However, FinCEN reports that criminals are migrating towards advanced obfuscation methods to counter the traceability of these payments flows. FinCEN has also concluded that “threat actors [are] increasingly requesting payments in anonymity-enhanced cryptocurrencies (AECs) and avoiding reusing wallet addresses, chain hopping, and cashing out at centralized exchanges, and using mixing services and decentralized exchanges to convert proceeds.” AML/CFT Considerations in Digital Assets Currently, centralized exchanges, stablecoin issuers, and other entities are subject to BSA obligations. As MSBs, exchanges, issuers and entities are required to register with FinCEN; develop, implement, and maintain an effective AML program; file suspicious activity reports (SARs) and currency transaction reports (CTRs); appoint a chief compliance officer; conduct training; and maintain certain records. In addition, entities are responsible for monitoring their platforms and blocking any users that are on OFAC’s Sanctioned Designated National List or from a sanctioned jurisdiction. Blockchain Analytics Blockchain analytics companies, in partnership with law enforcement, have developed extensive capabilities analyzing transaction data. These companies can establish attribution between a public address visible on the blockchain and the individual that initiated the transaction. The plethora of information gleaned through these investigations has resulted in several largescale discoveries of illicit activity in the digital asset ecosystem.9 These discoveries would have been impossible had these criminals used traditional funding mechanisms. Importantly, the tracing capabilities of these blockchain analytics firms are developing almost as fast as the technology itself. One analytics firm has developed a tool for law enforcement to use when criminals use AECs. Others have built out tracing and surveillance capabilities around mixers. Current Authorities of U.S. Law Enforcement FinCEN FinCEN’s mission is to safeguard the financial system through the collection, analysis, and dissemination of financial intelligence to law enforcement. FinCEN’s Director is appointed by the Secretary of the Treasury and reports to the Under Secretary of the Treasury for Terrorism and Financial Intelligence. FinCEN exercises regulatory functions primarily under the Currency and Financial Transactions Reporting Act, as... ___________________________________ Hearing page: https://democrats-financialservices.house.gov/events/eventsingle.aspx?EventID=411172