Recently, the United States’ crypto tsar, FinCEN Director Michael Mosier, has promised a possible crackdown on digital platforms to ensure an equitable playing field for cryptocurrency firms. The announcement comes on the heels of rising concerns surrounding the growing dependence on digital platforms for financial transactions and the absence of a regulatory framework for the cryptocurrency industry.
Digital platforms have emerged as a popular means of conducting transactions in the modern age. They provide convenience and ease of access, allowing individuals and businesses to conduct transactions across borders with reduced friction. However, digital currencies present an attractive opportunity for malicious actors to participate in illicit activities such as money laundering, terrorist financing, and other criminal activities.
Cryptocurrency regulation has always been a contentious issue in the US, with the industry in a legal grey area. The lack of a regulatory framework for cryptocurrencies has led to a proliferation of platforms hosting a variety of digital tokens, which are subject to little or no regulation.
The situation highlights the need for effective regulation to promote responsible behavior and provide users with transparency and security. Digital platforms need to align with the emerging regulatory environment to ensure that users are safe from potential frauds and other illegal activities perpetuated by bad actors.
As such, the US government, through its Financial Crimes Enforcement Network (FinCEN), is looking to provide oversight and regulation of the industry. FinCEN Director, Mosier, has reiterated the agency’s commitment to promote innovation while ensuring the safety of its citizens. He aims to create a regulatory framework that would offer accountability for both digital asset issuers and the platforms that sell and trade them.
Mosier has said that the rise of digital assets, specifically cryptocurrencies, has accentuated the demand for a stable regulatory environment. As such, the agency is putting in place measures to protect users from illegal activities and safeguard the integrity of the financial system.
Mosier also addressed accusations that financial regulators favor the traditional financial industry over the burgeoning crypto industry. He stated that the agency was neither pro nor anti-crypto. Instead, FinCEN seeks to create an equitable playing field for both industries.
In recent years, some digital platforms have come under scrutiny for not complying with regulatory statutes, allowing for the misuse of cryptocurrencies. Tether, a well-known stablecoin, recently settled a dispute with the New York Attorney General’s office for alleged malpractices. The company paid a $18.5m fine and was ordered to make significant improvements in its risk management operations to ensure compliance with regulations.
The regulatory focus is not just limited to digital asset issuers. Digital asset trading platforms have also come under scrutiny in recent years, amid concerns that they have not been complying with regulatory requirements. The US Securities and Exchange Commission (SEC) recently sued Ripple Labs, alleging that their XRP token offering was not compliant with federal securities laws.
The announcement signals a shift in the traditional resistance of the US government towards cryptocurrency and sheds light on the recognition of the benefit of blockchain technology and digital currencies. The move is expected to create a more conducive environment for crypto adoption, leading to more mainstream proliferation.
In conclusion, the US government’s regulatory stance on cryptocurrencies should come as no surprise. Digital assets and platforms have been operating outside of traditional financial regulations for years, leading to rising concerns about the safety of users and systemic risks. With the growing demand for cryptocurrency usage and blockchain technology, the need for regulatory oversight will become even more pressing. The regulatory focus not only benefits users and investors alike but also provides backing for mainstream usage of digital assets.
The top US cryptocurrency enforcement official has promised a crackdown on illicit behaviour on digital platforms, noting that the scale of crypto crime has grown significantly in the past four years. Eun Young Choi, who was appointed director of the Department of Justice’s national cryptocurrency enforcement team last year, has said that her department is targeting not just crypto exchanges, but also the “mixers and tumblers” that obscure the trail of transactions. The department is going after companies that allow crimes to occur or commit them, particularly those that enable money laundering.
Choi has emphasised that the department’s focus on platforms would be a deterrent message to businesses that are avoiding anti-money laundering or client identification rules, and who are not taking solid steps towards compliance and risk mitigation. She said that the scale and scope of digital assets being used for illicit purposes has increased significantly in the past four years, which coincides with the increase of its adoption by the public.
Choi’s comments come after the collapse of FTX, which was widely perceived as a sound player in the crypto sector. FTX founder Sam Bankman-Fried faces criminal charges, including wire fraud, conspiracy to commit money laundering, and campaign finance law violations. Washington has also targeted Binance, the world’s largest crypto exchange, for operating illegally in the country.
There are concerns in the industry that a crackdown on such companies would throw the broader industry into further disarray. However, Choi has emphasised that a company’s size is not something that the department will countenance while weighing potential charges. If a company has amassed a significant market share by flaunting US criminal law, the DoJ cannot “give someone a pass because they’re saying: ‘Well, now we’ve grown to be too big to fail.’”
The Department of Justice’s crypto unit aims to bring more enforcement actions targeting investment scams, as the volume of funds lost to such schemes has ballooned. The unit is also focusing on thefts and hacks involving decentralised finance (DeFi), particularly chain bridges, where users can exchange different types of digital tokens, or nascent projects with codes that are vulnerable to these attacks.
This is a “pretty significant issue” for the DoJ given North Korean state-sponsored hackers have emerged as key actors in this space. The justice department in February charged a man for defrauding DeFi platform Mango Markets of crypto worth $110mn.
The industry is expected to face further regulatory scrutiny as cryptocurrencies become more mainstream. Choi’s appointment comes as the US under the administration of Joe Biden has emerged as one of the jurisdictions with the toughest stance on crypto worldwide. It is clear that regulation and enforcement will intensify, with a crackdown on crypto platforms and companies that do not meet compliance standards.
