U.S. Treasury Seeks Expanded Powers for Overseas Crypto Pursuit

• The U.S. Treasury Department Advocates For Enhanced Crypto Regulation Powers
• Proposed Enhanced Oversight on Crypto Sector
• Highlighting the New Regulation Proposal
• The Need for Updated Financial Regulations
• Secondary Sanctions Tool and Amendments to the Bank Secrecy Act
• Industry Concerns And Geopolitical Conflict
• Focus on Tether
• Abuse of Platforms by Terrorists
• Recent Actions Against Crypto Activities
• Adapting to New Illicit Finance Trends

The U.S. Treasury Department Advocates For Enhanced Crypto Regulation Powers

The U.S. Department of the Treasury is urging lawmakers for expanded powers to combat unlawful financial activities involving cryptocurrencies. The requests include special jurisdiction over non-U.S. stablecoin issuers like Tether$1.000 -0.12%.

Proposed Enhanced Oversight on Crypto Sector

The department seeks new powers that would grant the government unmatched enforcement and sanctions authority over the crypto sector. These powers include the capacity to transcend American borders and engage with transactions not directly involving American citizens.

Highlighting the New Regulation Proposal

Deputy Secretary of the Treasury, Wally Adeyemo, has presented a written proposal detailing a set of recommendations to expand authorities and enhance tools and resources to tackle unlawful actors in the digital asset space.

The Need for Updated Financial Regulations

As financial methods continue to evolve, many existing authorities have not been updated in decades. Terrorist organizations, including Hamas, now utilize new digital ways to move, store, and disguise their funding streams. Often, these methods employ elusive cryptocurrency networks and services, including mixers.

Secondary Sanctions Tool and Amendments to the Bank Secrecy Act

The proposal suggests that Congress grant the Treasury a new secondary sanctions tool against exchanges supporting terrorism, similar to powers long-held over correspondent banking accounts and targeted at virtual asset providers. The suggested tool would account for the technological changes that have made traditional payment context tools less effective against cryptocurrencies.

Furthermore, the proposal calls for strengthening the department's powers under the Bank Secrecy Act (BSA), allowing for targeting cryptocurrency entities and services that facilitate funding for terrorists. The proposal introduces a new category of financial institutions under the BSA, including cryptocurrency exchanges, Virtual Asset Service Providers (VASPs), virtual asset wallet providers, blockchain validator nodes, and decentralized finance services, requiring them to satisfy certain anti-money-laundering demands.

Industry Concerns And Geopolitical Conflict

However, many industry entities such as wallet providers and decentralized finance (DeFi) entities may not be in a practical position to meet these requirements, which could potentially eliminate them. Austin Campbell, founder of Zero Knowledge Consulting, highlighted that while the proposal has reasonable points, it also requests one of the most extensive expansions of powers since the Patriot Act, potentially causing significant geopolitical conflict due to overreach.

Focus on Tether

The government is also seeking authority over Tether, the issuer of the largest stablecoin, USDT. The proposal suggests that legislation could explicitly authorize OFAC to exercise extraterritorial jurisdiction over transactions in stablecoins pegged to USD as they would over USD transactions, enabling reach into transactions that involve no U.S. touchpoints.

Abuse of Platforms by Terrorists

As part of his remarks, Adeyemo emphasized that non-U.S. stablecoin issuers should not use the U.S. dollar without procedures in place to prevent their platforms' misuse by terrorists. This Treasury campaign points to reports on crypto funding attempts by Hamas, but does not mention that aspects of these reports had been discredited by an analysis firm initially cited, leaving Hamas' involvement in crypto uncertain.

Recent Actions Against Crypto Activities

Recently, the Treasury Department reached a landmark $4.3 billion settlement with Binance, which included the Treasury's largest-ever corporate penalty. The agreement placed the largest global exchange under monitors to report the company's ongoing behavior to U.S. government watchdogs. Additionally, the department announced its latest action against a crypto mixing service, Sinbad.

Adapting to New Illicit Finance Trends

As terrorists and criminals innovate their approach to illicit finance, we need tools to be able to keep up with them, Adeyemo said.

Edited by Jonathan Stoker