The US Treasury has released a 42-page report assessing the risks of decentralized finance (defi). The report states that targeted nation-state adversaries, cybercriminals, ransomware attackers, thieves, and fraudsters are using defi to “transfer and launder their illicit proceeds.” The Treasury report warns that the defi could threaten national security and calls on lawmakers to increase oversight.
US Treasury report assesses risks associated with decentralized finance
The US Treasury published a report on April 6, 2023, which assesses the alleged risks of defi. “The risk assessment explores how illicit actors abuse defi services and the unique vulnerabilities of defi services to inform efforts to identify and address potential gaps in the AML/CFT regulatory, supervisory and compliance regimes of the United States,” the national treasury and finance department said. . The report was written by Treasury officials, including Brian Nelson, the Treasury under secretary for terrorism and financial intelligence.
“Defi services currently often do not implement AML/CFT checks or other processes to identify clients, allowing earnings to be overlaid instantly and pseudonymously, using long strings of alphanumeric characters instead of names or other personally identifiable information,” the report added. . It also acknowledges that some companies are providing AML/CFT controls and that there are chain surveillance companies. However, Nelson and the report’s authors argue that these controls and monitoring practices “do not adequately address identified vulnerabilities on their own.”
The defi report also discusses how the Treasury intends to strengthen federal oversight and regulatory policies. The authors emphasize that “Centralized Virtual Asset Service Providers (VASPs) and industry solutions can partially mitigate some of these vulnerabilities.” The Treasury Department stated that regulations covering traditional finance should also apply to decentralized finance, and regulators should close the specific loopholes that cybercriminals, money launderers, and fraudsters currently exploit. Interestingly, despite the 42-page report, the authors of the Treasury report conclude by stating that illicit finance “remains a minor portion of the overall virtual asset ecosystem.”
On page 36 of the report, which covers the conclusion, recommended actions, and questions posed, the researchers emphasize that crypto assets or defi are not typically used by most nation-state adversaries and cybercriminals for illicit financing. “In addition, money laundering, proliferation financing, and terrorist financing occur more frequently using fiat currency or other traditional assets rather than virtual assets,” the report authors conclude.
What do you think about the US Treasury report assessing the alleged risks associated with defi? Share your thoughts on this topic in the comments section below.
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