US Treasury Official Asks DeFi Community To Innovate Some Compliance Mechanisms

On April 21, Elizabeth Rosenberg, Treasury Undersecretary for Terrorist Financing and Financial Crime, reminded an audience at the Atlantic Council think tank that the US Treasury had conducted a risk assessment of decentralized finance (DeFi ) and had discovered that the sector had several shortcomings. . Prepare for more regulation, he said.

Rosenberg was referring to a report released earlier this month by the Treasury which found that North Korean scammers, money launderers and hackers were profiting from non-compliance with anti-money laundering and anti-money laundering regulations. – financing of terrorism in the sector. This report was part of the Treasury’s response to US President Joe Biden’s executive order on the responsible development of digital assets.

The report also revealed that the DeFi sector was not always very decentralized. “Usually there are people and companies associated with these services [DeFi] which AML/CFT obligations may already apply,” said Rosenberg. The assessment report established that all DeFi services are subject to compliance with banking secrecy law, including the fight against money laundering and the financing of terrorism.

“We will assess improvements to our national AML/CFT regulatory regime as applied to DeFi services and monitor responsible innovation of AML/CFT compliance and sanctions tools,” Rosenberg said. And he continued:

“I want to send a specific message to the private sector. DeFi innovation should not only happen in the technical and financial field: there is a huge need and potential for innovation in compliance mechanisms that could help all actors in the digital ecosystem to ensure they stay on the right side of the law.

Rosenberg and his team had just returned from the FATF Virtual Assets Contact Group meeting in Tokyo. The team also presented the results of the Treasury DeFi risk assessment there.

The timing of Rosenberg’s intervention is also noteworthy as the European Parliament passed the Cryptocurrency Markets Act (MiCA) a day early. The MiCA legislation included provisions to track or block certain cryptocurrency payments. This practice to combat money laundering and the financing of terrorism is already used in traditional finance and is known as the “travel rule” in the FATF. It was also a key part of Treasury’s risk assessment.

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