Agencies of the U.S. Treasury getting tough on crypto AML compliance

AML compliance

Steve Mnuchin is determined to become the proverbial “fly” in the crypto “ointment”. The head of the U.S. Treasury made it clear last July, when Facebook’s Libra project was taking a beating in Congress, that he is no fan or friend of cryptocurrencies. Whether it is his personal opinion or just agreeing with President Trump’s equal share of disdain, the reality is that various agencies of the Treasury are now proceeding on a “Witch Hunt” to punish wrongdoing within the crypto-verse, as if on cue and ahead of public deadlines.

Last July, Mnuchin’s words came right out of the blue, without any context, other than a need to follow his boss’s statement that he disliked Bitcoin and all things crypto. Mnuchin was then reported by several financial news outlets that cryptos posed a national threat of some kind:

This is indeed a national security issue. Cryptocurrencies such as bitcoin have been exploited to support billions of dollars of illicit activity like cyber crime, tax evasion, extortion, ransomware, illicit drugs, and human trafficking.

Articles would typically follow, which would cite the Silk Road, the Dark Web, and the anonymity issues surrounding cryptos and the blockchain. The Silk Road, an illegal trading venture that had a cash flow of at least $213 million, was shut down by the FBI in 2013, but the Dark Web continues on, while Tor software protects anonymity:

Anonymity is a much larger Internet issue than a crypto one, as demonstrated by the usage patterns of this protective software. As the Medium explains:

Users download and use a software called Tor, which uses a complex intermediary server architecture to hide both the IP address of the server and that of the users surfing on it. Using a Tor browser, people can access the internet anonymously. They can visit traditional websites like Facebook without leaving a digital footprint. Or they can go to a site on the Darkweb.

Law enforcement officials and blockchain analysis firms have come a long way since the closure of the Silk Road to develop methods for policing the blockchain and for enabling the apprehension of criminals, who thought they were secure and “unseen”. Police agencies are quite happy with the public transparency of the blockchain, and the “noose” about the necks of crypto criminals rying to hide on the blockchain is tightening every day, but little is written about this progress.

It now appears that Mnuchin has ordered his various henchmen in charge of compliance agencies of the Federal Government to step up the public rhetoric against cryptos and their usage by the public and, by association, the criminal element of our society. These moves seem a bit early, considering the fact that the crypto industry has been working to conform with Financial Action Task Force (FATF) guidelines that go into effect in June 2020. The FATF’s “Travel Rule” requires full identity disclosures for all crypto transfers.

One of the two agencies is FinCEN, whose mission, according to its website, is “to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.” As “money transfer agents” under the law, U.S.-based crypto exchanges must comply with FinCEN regulations. The second agency is the IRS, the national tax collection agency reporting to the Treasury.

Recent public comments include the following:

  • Kenneth Blanco, director of FinCEN, recently spoke at a conference sponsored by Chainalysis, a respected crypto data and analysis firm. His message was clear: “It (travel rule) applies to CVCs (convertible virtual currencies) and we expect that you will comply period. That’s what our expectation is. You will comply. I don’t know what the shock is. This is nothing new. FinCEN…has been conducting examinations that include compliance with the funds’ travel rule since 2014.”
  • John Fort, IRS Criminal Investigation Chief, speaking at a separate forum, noted: “The agency is now turning its focus to crypto ATMs and kiosks, as well as American users of foreign exchanges.”

Will we see a succession of other federal agencies alerting the crypto community of other pressing compliance issues… or else? It may be speculation at this juncture, but recently reported: “According to a news article from Blockchain News earlier this year, cryptocurrency thefts, scams and fraud may exceed $4.3 Billion For 2019. And the CipherTrace Q2 2019 Cryptocurrency Anti-Money Laundering (AML) Report revealed that regulators were already threatening an end to anonymity with the “Travel Rule” earlier this year.” The regulators mean business this time around.

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