Crypto Crime in Context: Breaking Down the Illicit Activity in Digital Assets (EventID=116579)

Adolf Goebbels
Published on Nov 18, 2023
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On Wednesday, November 15, 2023, 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: Breaking Down the Illicit Activity in Digital Assets."

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Witnesses for this one-panel hearing will be:

• Bill Hughes, Senior Counsel & Director of Global Regulatory Matters at ConsenSys and previously Associate Deputy Attorney General at the Department of Justice

• Jane Khodarkovsky, Partner at Arktouros and previously Trial Attorney and Human Trafficking Finance Specialist with the U.S. Department of Justice’s Money Laundering and Asset Recovery Section

• Jonathan Levin, Co-Founder & Chief Strategy Officer, Chainalysis

• 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

• Alison Jimenez, President, Dynamic Securities Analytics, Inc

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Blockchain Technology and Digital Assets

One value proposition that blockchain networks and the digital assets that transact on top of them offer is that there is a transparent and immutable record of all transactions that have and will occur. Any transaction on one of these networks can be identified by a public address that is linked to the wallet where the transaction originated. Thus, any individual with access to the internet can look up a given blockchain network and view the entire transaction history of a public address. An entire subindustry within the digital asset ecosystem has developed to analyze public blockchains, determine trends in activity, and support law enforcement in rooting out illicit activity. Blockchain analytics firms, in partnership with law enforcement in the United States and abroad, have made considerable progress in helping to reduce illicit activity.

Another feature of blockchain networks is the public nature and ease of access. While increased accessibility contributes to increased consumer engagement, it also means increased access by bad actors. While it is inevitable that criminals will look to new and evolving mechanisms, like digital assets, to fund their illicit activity, the amount of illicit activity relative to the amount of ilicit activity is minimal. This point was confirmed by the Department of Treasury when it acknowledged that “most virtual currency activity is licit.” To ensure that the digital asset ecosystem is not exploited by bad actors, it is critical that Congress understand the degree to which illicit activity exists, what tools are available to combat this activity and explore any potential gaps to prevent and detect illicit activity.

Estimated levels of illicit activity in the digital asset ecosystem

Money Laundering

According to the Treasury Department’s 2022 National Money Laundering Risk Assessment, “the use of virtual assets for money laundering remains far below that of fiat currency and more traditional methods.” Nevertheless, bad actors may seek to use digital wallets, mixers, and digital asset trading platforms to transact and obfuscate the movements of digital assets. Importantly, the exchange of illicitly obtained digital assets for fiat removes the ability for law enforcement to trace the transaction that would otherwise be available through blockchain. Treasury has highlighted that the problem is not with the United States but with digital asset platforms that operate outside of the U.S. that have “substantially deficient” anti-money laundering programs. Treasury has emphasized that “uneven and often inadequate regulation and supervision internationally allow virtual asset service providers (VASPs) and illicit cyber actors to engage in regulatory arbitrage and expose the U.S. financial system to risk from jurisdictions where regulatory standards and enforcement are less robust.”

Terrorist Financing

Considerable focus has been placed on terrorists’ use of digital assets to fund their operations. While there has been increased attention on the use of digital assets, 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.”6

AML/CFT Considerations in Digital Assets

The AML/CFT regime for...

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Hearing page: https://democrats-financialservices.house.gov/events/eventsingle.aspx?EventID=410974