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Crypto doesn’t have a problem with illicit financing, unlike bad actors
The testimony of Deputy Treasury Secretary Wally Adeyemo on April 9 before the US Senate Banking Committee should constitute a real state of the union address on illicit financing, and crypto will undoubtedly feature prominently during the hearing. This is especially true as headlines about Russia using “crypto” to evade sanctions or to smuggle arms dominate the headlines. go around.
Despite cryptocurrencies checkered scoreboard in recent years, which has seen record losses, market manipulation, fraud and clear examples of highly traceable illicit financing (although relatively small), the media’s use of the word “crypto” as a catch-all is misleading. Most often these are unique products, blockchains and platforms such as Tornado Cash Or Terra-Moon which create a network of bad activities. The digital assets industry, like the banking industry, is not monolithic.
Dante Disparte is Chief Strategy Officer and Head of Global Policy at Circle, a leading fintech and regulated company. issuer of USDC.
Yet unlike banking, broader “cryptography” carries a disproportionate reputational burden, despite the fact that most illicit activity involves individual entities, products, or other named services. A recent report from TRM Labs titled The illicit crypto economy underlines it just as much. Thus, the continued use of the catch-all term “crypto” amounts to blaming all banks for the misdeeds of a single bank. Imagine if every bank in the world had to atone for the sins of a single bank like Danske Banke, which in 2022, pleaded guilty to $212 billion money laundering linked to Russia?
As senators weigh the merits of Adeyemo’s important testimony, they are also expected to weigh the consequences of more than five years of U.S. political inaction in regulating the highly capricious sectors of the crypto industry that represent the largest major threats to consumers, markets and, of course, national security. . U.S. policymakers and regulators, from Treasury Secretary Janet Yellen to Federal Reserve Chairman Jerome Powell (and Deputy Secretary Adeyemo), have all called for congressional action. They are particularly focused on dollar-denominated stablecoins, the digital savings of the crypto world, much of which borrows trust from the dollar, without having to answer to US financial crime compliance laws.
This critical regulatory gap can be filled through urgent passage of the Stablecoin Payment Clarity Act, which has undergone intense development over the past two years and was adopted by the House Financial Services Committee. Rather than viewing this important bill as a set of laws that would legitimize wayward actors and the misdeeds of certain crypto products and services, even skeptical senators and congressmen should view this bill as one that affirms American leadership in digital dollars everywhere, regardless of country. of their form factor.
Importantly, the law would create a threshold for all issuers to comply with U.S. anti-money laundering, anti-terrorism financing, and sanctions obligations. These standards are expected to be applied to U.S. issuers of payment stablecoins, as well as their international counterparts, many of which are authorized to issue dollar-denominated stablecoins from jurisdictions like the United Arab Emirates, Hong Kong, and Singapore.
Circle, the issuer of the stablecoin USDC, today meets all of these standards as part of our obligations as a regulated money transfer company in the United States and as a money services business registered with Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury. There is an effective deterrent regarding regulated stablecoins and their corresponding value chains, limiting their use in illicit activities. Compliance with laws, working with peer-regulated financial institutions and respecting financial integrity make a big difference. That is why, according to third party reports, USDC is used for lawful purposes at rates of 99.95%. Because no financial system is without risk, good crypto companies, banking and non-banking, as well as law enforcement, would do well to adopt a collective defense model when it comes to fighting against illicit finance.
The crypto industry ensures broad compliance at operational and technological levels with the travel rule (which establishes international standards for sharing information to prevent money laundering and terrorist financing). This is also part of the TRUST network, which Coinbase and at least 58 other crypto companies have adopted. Slow-moving policymakers would do well to learn from the example set by the world’s leading financial crime agencies, which were among the very first to establish globally harmonized rules for crypto under the of Recommendation 16 of the Financial Action Task Force (FATF), imposing the Travel Rule on international crypto transactions.
With over $150 billion in circulation, stablecoins are too important to ignore. By combining the trust of the US dollar with the internet superpowers, they are poised to fundamentally modernize our global financial system, making it faster and fairer. As Deputy Secretary Adeyemo will no doubt assert, there are a range of complex threats to the U.S. economy and to our leadership in the world. Adopting clear laws for new crypto markets, as for the banking sector before it, can preserve this leadership.