US Treasury goes all-in, seeks expanded role to tackle crypto crime

Cryptocurrencies have introduced novel challenges to regulatory bodies worldwide due to their decentralized and pseudonymous nature, which can facilitate illegal activities such as money laundering and terrorism financing. A U.S. Treasury official has been advocating for an expanded regulatory authority to combat crypto-related crimes effectively in response to these emerging risks. 

This official has urged Congress to grant additional powers to the Treasury Department to enhance its ability to monitor, investigate, and enforce regulations concerning cryptocurrencies. The Treasury’s initiative underscores the growing recognition of the need for regulatory measures tailored to the unique characteristics of digital assets. 

US Treasury’s bold move could shape the future of crypto regulation

In a statement before the House Financial Services Committee, a US Treasury official voiced concern about the use of crypto in illegal finance and requested broader ability to pursue bad actors. The committee hearing is scheduled for February 15.

Brian Nelson, the Treasury Department’s Under Secretary for Terrorism and Financial Intelligence, stressed this need in his prepared remarks for a congressional hearing on terrorism and crypto crimes.

Nelson’s statement comes with increased attention from Washington lawmakers, notably Senator Elizabeth Warren, who has been promoting her anti-money laundering legislation. 

The Digital Asset Anti-Money Laundering Act (DAAMLA), which Warren reintroduced to the United States Senate in July 2023, specifically targets the criminal use of digital assets for money laundering and terrorism financing.

“Treasury is deeply concerned about the use of virtual assets for all illicit financial activity,” Brian Nelson, Treasury’s Under Secretary for Terrorism and Financial Intelligence, stated in prepared remarks prior to a House Financial Services Committee hearing on terrorism and illicit finance.

Treasury has spent the last decade developing a framework to combat terrorist financing that “mitigates illicit finance risks while promoting responsible innovation,” Nelson stated in his prepared statement.

Treasury does have instruments to address some issues, including the authority to hold corporations accountable for failing to comply with the Bank Secrecy Act.

However, to root out illicit finance by players in virtual asset markets and forums, we need additional tools and resources […] That is why we are eager to work with Congress to adopt common-sense reforms that update our tools and authorities to match the evolving challenges we face today. Brian Nelson

Could this be the path to proper crypto regulation in the US?

In 2023, the Treasury Department shared proposals with Congress to enhance its authority, including additional sanctions tools to combat cryptocurrency wrongdoers. The Treasury also underlined the need for stronger stablecoin supervision, though Nelson did not expressly address it.

Nelson’s remarks follow the Treasury’s recent release of the 2024 National Risk Assessments on Money Laundering, Terrorist Financing, and Proliferation Financing. 

These assessments identified dangers and risks associated with illicit finance in the United States, particularly the cryptocurrency sector. The research stressed that while cash is the primary tool for drug laundering, bad actors are increasingly using virtual assets.

Nelson will also brief legislators on Treasury’s attempts to prevent Hamas from moving or raising cash to support terrorism and said the agency is searching for new techniques the group may employ. 

While we continue to assess that terrorists’ use of digital assets remains a small fraction of more established mechanisms to move money, we recognize that terrorist groups have and may continue to turn to digital assets to raise, transfer, and store their illicit proceeds. Brian Nelson

Nelson stated that Treasury will continue to seek funds related to Hamas in the future. The House Financial Services Committee’s Subcommittee on Digital Assets, Financial Technology, and Inclusion will hold a hearing on February 15 to investigate bitcoin and criminal activity.