The biannual National Strategy for Combatting Terrorist and Other Illicit Financing has been released by the United States Treasury Department. This strategy introduces four priority recommendations that could potentially impact virtual assets in various ways.
Recognizing the challenges faced by law enforcement in keeping up with the advancements in financial technology, the Treasury’s first two priorities are to address regulatory gaps in Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT), as well as establish a more focused and effective supervisory framework. Additionally, the Treasury will assess the need for further actions on sectors that are not currently subject to comprehensive AML/CFT measures.
The strategy also emphasizes the importance of increasing enforcement efforts. The Federal Bureau of Investigation’s Virtual Assets Unit is highlighted as an example of the Treasury’s new focus on blockchain technology. This unit provides FBI personnel with technological equipment, blockchain analysis, virtual asset seizure training, and other advanced virtual asset training.
Furthermore, the Treasury aims to promote responsible technological innovation and utilize technology to mitigate illicit finance risks through a range of measures. It recommends enhancing inclusivity in the financial system and combatting derisking, which involves denying correspondent services to small banks in high-risk areas. Derisking not only negatively impacts legitimate bank users but also encourages the use of cryptocurrency-based payment and remittance solutions that do not rely on traditional banking services.
The strategy also highlights the importance of creating improved cross-border payment systems and regulated money transfer options. It cites the G20 Roadmap and the FedNow domestic transfer system as successful implementations of this approach.
Artificial intelligence and digital identity are identified as potential game-changers in the strategy’s success. While AI can be utilized to enhance government regulatory and enforcement efforts, it can also be exploited by illicit users of the financial system, according to the strategy.
In a related development, the FBI’s recent arrest of Virgil Griffith for violating sanctions serves as a firsthand example of the strategy in action.
Overall, the National Strategy for Combatting Terrorist and Other Illicit Financing sets out key priorities and recommendations to address the evolving landscape of virtual assets and combat illicit finance effectively.