Casey Wagner

After months of delays due to an alleged lack of cosponsors, Sens. Elizabeth Warren, D-Mass., and Roger Marshall, R-Kan., have reintroduced their crypto anti-money laundering bill.



This time, the bill features an even greater emphasis on targeting individual industry members, such as miners and validators.&nbsp;



The Digital Asset Anti-Money Laundering Act of 2023 aims to bring “crypto participants” — defined in the bill as wallet providers, miners and validators — under compliance requirements for financial institutions. If the bill passes, these entities will have to file reports for any transactions exceeding $10,000 and report any activity that could signify money laundering or tax evasion.&nbsp;



Opponents of the <a href="https://www.warren.senate.gov/imo/media/doc/Digital%20Asset%20Anti-Money%20Laundering%20Act%20of%202023.pdf">bill</a> argue that these players are not equipped to follow such requirements and doing so would hinder their ability to conduct business.&nbsp;



“Treating these entities commensurate with the largest banks, hedge funds, and money transmitters would weigh them down with unnecessary compliance, stifle innovation, hinder industry growth, and force activity offshore to jurisdictions with less adequate security and oversight,” the Chamber of Digital Commerce wrote in a <a href="https://digitalchamber.org/statement-on-digital-asset-aml-act/">statement</a> opposing the legislation.&nbsp;



The bill also requires anyone in the US with more than $10,000 in crypto held in accounts outside of the US to report this to the Financial Crimes Enforcement Network (FinCEN).&nbsp;



Warren and Marshall first <a href="https://www.congress.gov/bill/117th-congress/senate-bill/5267/committees">introduced</a> a version of the bill late last Congressional session, but the text never made it to committee markup. The two <a href="https://blockworks.co/news/warren-crypto-bill-delayed">recruited Sens. Joe Manchin, D-W.V., and Lindsey Graham, R-S.C.</a>, as cosponsors on the revamped bill.&nbsp;



The Digital Asset Anti-Money Laundering Act of 2023 is similar to the Crypto Asset National Security Enhancement Act of 2023, <a href="https://blockworks.co/news/bipartisan-bill-defi-project-controllers">introduced in the Senate earlier in July</a>. The latter bill also enjoys bipartisan support, sponsored by Sens. Jack Reed, D-R.I., Mark Warner, D-Va., Mike Rounds, R-S.D., and Mitt Romney, R-Utah.&nbsp;



Reed’s bill puts a greater emphasis on DeFi and bringing the industry under existing Bank Secrecy Act and sanctions requirements. Warren and Marshall’s effort focuses on redefining “financial institutions” and bringing crypto under this umbrella.&nbsp;



Both bills have been referred to the Senate Committee on Banking, Housing and Urban Affairs, although neither has been scheduled for a markup.



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Anti-money laundering

Dueling crypto anti-money laundering bills face off in the Senate

James Cirrone

Deloitte and Chainalysis will become strategic partners in a bid to boost crypto compliance among their shared clients, Chainalysis revealed in a <a href="https://blog.chainalysis.com/reports/deloitte-and-chainalysis-alliance/">statement</a> Tuesday.



Chainalysis told Blockworks the partnership has been in the works for “several years” and will “serve US public sector customers and financial institutions.”&nbsp;



Both Deloitte and Chainalysis declined to offer up specific clients that will benefit from this partnership.



Mutual clients of the two companies can now use Chainalysis’ blockchain dataset, analytics software, and training program, while also taking advantage of Deloitte’s services to manage forensic, investigative and compliance programs, according to the press release.



Deloitte’s <a href="https://www2.deloitte.com/kz/en/pages/strategy-operations/solutions/blockchain-services-and-solutions.html">website</a> said the Big Four firm offers “blockchain services” to its clients. One thing its consultants help with is “defining blockchain goals and objectives,” while also accelerating the building of customers’ “blockchain prototypes.”



Chainalysis will work alongside Deloitte’s digital assets outfit to update clients on risk management, anti-money laundering and know-your-customer (AML/KYC) requirements, and regulatory compliance, among other things.&nbsp;



Chainalysis’ president and chief revenue officer, Thomas Stanley, said the collaboration between his firm and Deloitte on crypto compliance is poised to significantly aid law enforcement efforts.



“For law enforcement agencies, regulators, and financial ecosystem players across the nation, the alliance offers new, collaborative solutions that help identify transformation gaps, accelerate mission success at enterprise scale, and mitigate risk while increasing revenue,” Stanley said in a statement.&nbsp;



<a href="https://blockworks.co/news/deloitte-crypto-hiring-spree">Deloitte has recently signaled increased broader interest in crypto</a>, listing over 300 roles in April 2023 that had to do with digital assets, cryptocurrency tax implications, and even NFTs.



Native crypto firms are also interested in the services Deloitte can provide, with USDC issuer <a href="https://blockworks.co/news/circle-taps-deloitte-as-new-auditor-doubles-down-on-proof-of-reserves">Circle hiring the accounting giant to audit its proof of reserves in January 2023</a>.



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Deloitte, Chainalysis partner up in quest to achieve crypto compliance

Singapore’s central bank in a report this week outlined a number of “key risks” pertaining to cryptocurrencies — while proffering regulatory guidelines designed for crypto compliance.&nbsp;



The <a href="https://blockworks.co/tag/monetary-authority-of-singapore">Monetary Authority of Singapore</a> in its report on Tuesday laid out a number of related situations for banks, reiterating previous stances around shoring up crypto risk management procedures, especially so as to guard against money laundering and terrorism financing.&nbsp;&nbsp;



MAS officials started by defining different types of digital assets — including drawing a distinction between cryptocurrencies and <a href="https://blockworks.co/tag/stablecoins">stablecoins</a> — and gauged the criteria needed for each to present a risk.&nbsp;



If a crypto asset, according to the MAS, can be traded, transferred or used as a payment method or investment, guarding against potential money laundering and terrorism financing would come into play.&nbsp;



“A digital asset that fulfills any 1 of the 4 criteria would be considered relevant, given it can be used to store or facilitate the movement of tainted proceeds,” the MAS wrote in the 29-page <a href="https://abs.org.sg/docs/library/acip-best-practices-for-the-management-of-ml-tf-and-pf-risks-from-customer-relationships-with-a-nexus-to-digital-assets_100723-(publish).pdf">report</a>.&nbsp;



The MAS advised financial institutions that tokens not backed by a government or a set of regulated entities present additional risk. The same went for tokens issued under decentralized governance and tokens that can easily and quickly be exchanged for fiat currency.



Cryptocurrencies including bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>), ether (<a href="https://blockworks.co/price/eth">ETH</a>) and tether (<a href="https://blockworks.co/price/usdt">USDT</a>) are especially risky for financial institutions, the banks said. NFTs were mentioned, as well.



To guard against bad actors, the MAS told banks to consider whether the digital payment token service provider counterparties obscure customer transactions. And for “enhanced due diligence,” banks may have to do “site visits or walkthroughs of client’s AML/CFT [anti-money laundering/combating the financing of terrorism] processes and controls,” the MAS said.&nbsp;



Last week, the Singapore entity said in a paper it aims to restrict such providers from “<a href="https://blockworks.co/news/singapore-thailand-ban-crypto-staking">facilitating lending and staking of DPT tokens by their retail customers</a>.”



The MAS also pointed out that the very nature of how permissionless blockchains work provides an easy way for banks to monitor activity.



“Blockchain analytics tools provide insights into the on-chain activity, thereby providing an opportunity for [financial institutions] to integrate the same into their overall risk management framework,” the MAS wrote. [Financial institutions] may consider using insights from such tools to facilitate holistic risk management across off-chain and on-chain activity pertaining to their clients.”



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On-chain monitoring ‘holistic risk management’ for banks, Singapore central bank says

The European Banking Authority wants to expand the scope of its guidelines for money laundering and terrorist financing risk factors to include “crypto-asset service providers.”



The European Union’s financial regulator argued in a <a href="https://www.eba.europa.eu/sites/default/documents/files/document_library/Publications/Consultations/2023/Consultation%20on%20revised%20Guidelines%20on%20money%20laundering%20and%20terrorist%20financing%20%28ML-TF%29%20risk%20factors/1055913/Consultation%20paper%20on%20amending%20Guidelines%20on%20ML%20FT%20risk%20factors.pdf">consultation</a> published Wednesday that these guidelines ought to include warnings about transactions with self-hosted crypto addresses and crypto service providers that fall outside the regulatory reach of <a href="https://blockworks.co/news/eu-parliament-passes-mica-vote">the incoming MiCA rules</a>.&nbsp;



In an executive summary of the consultation, the EBA explains that this amendment isn’t necessarily meant to put crypto asset service providers (CASPs) on blast, but to let them know the risks associated with their business model and help them mitigate such risks.&nbsp;



“The amendments introduce new sector-specific guidance for CASPs, which highlights factors that may indicate the CASP’s exposure to the higher or lower [money laundering and terrorist financing] risk,” the EBA wrote.



Other risks associated with crypto service providers mentioned by the European regulator had to do with products that exchange cryptocurrencies for fiat money and users who are on the “darknet” or “involved in crypto mining in high-risk jurisdictions.”



The summary continued, “CASPs should consider these factors when carrying out the [money laundering and terrorist financing] risk assessments of their business and customers at the outset and during the business relationship. The Guidelines also explain how they should adjust their customer due diligence (CDD) in line with those risks.”



The consultation also wants European authorities to provide further risk guidance to financial institutions that are interested in conducting business with crypto companies.



The deadline to submit comments on the consultation is August 31, 2023.



As crypto becomes more mainstream, governmental bodies are soliciting the opinions of crypto firms on policy matters more often. For instance, the <a href="https://blockworks.co/news/uk-crypto-regulation-in-the-works">UK issued a proposal in February</a> 2023 that covered regulation on NTFs, <a href="https://blockworks.co/news/nuclear-bitcoin-mining-hits-snag">bitcoin mining</a> and stablecoins. Many firms <a href="https://blockworks.co/news/opinions-uk-crypto-policy">responded to the UK with agreement, criticism and suggestions</a>, including Binance, a16z, Polygon, Circle and <a href="https://blockworks.co/news/21shares-warns-uk-regulators">21Shares</a>.



Hong Kong is another place that had <a href="https://blockworks.co/news/hong-kong-to-lift-crypto-ban">a consultation period for digital asset regulation</a>, which led to the city state <a href="https://blockworks.co/news/hong-kong-cozy-crypto">allowing crypto trading for retail investors</a>. 



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European Banking Authority Wants to Include Crypto in Money Laundering, Terrorism Guidelines

Stephen M. Kohn

The US has introduced a new anti-money laundering whistleblower act that could change how cryptocurrency crimes are policed worldwide.&nbsp;



If done right, the empowerment of crypto whistleblowers through the AML Whistleblower Improvement Act can mark a revolutionary advancement in policing money laundering and sanctions violations in the US and abroad.



On Dec. 23, 2022, the United States Congress <a href="https://kkc.com/blog/congress-passes-landmark-anti-money-laundering-whistleblower-law/">passed</a> the <a href="https://www.govtrack.us/congress/bills/117/s3316/text">Anti-Money Laundering (AML) Whistleblower Improvement Act</a> to establish an effective whistleblower award program for individuals who report money laundering, violations of the Bank Secrecy Act, and sanctions busting.&nbsp;



Given the increasing prevalence of cryptocurrency in money laundering and sanctions-busting schemes, the new law has immense implications for whistleblowers employed by crypto exchanges.



The updated AML Act is based on the highly successful <a href="https://kkc.com/frequently-asked-questions/dodd-frank-act-whistleblower-protections-and-rewards/">Dodd-Frank Act</a>, which established the SEC’s Whistleblower Program and has been universally praised by every SEC chair, of either political party, since it was enacted in 2010. <a href="https://www.sec.gov/files/2022_ow_ar.pdf">To date</a>, information from whistleblowers has resulted in over $6.3 billion in total monetary sanctions. Correspondingly, over $1.3 billion has been awarded back to the whistleblowers. These financial incentives are the heart of the SEC’s program.



All eyes are now on the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) as it develops the new program regulations.&nbsp;



How the Treasury department implements this new law could stifle its effectiveness or enhance its ability to fully incentivize whistleblowers worldwide to report money laundering and sanctions violations.



<h2 class="wp-block-heading">What FinCEN can do right&nbsp;</h2>



When writing the new regulations, FinCEN must consider:



<ol class="wp-block-list">
<li>Establishing an effective whistleblower office that fully communicates with the Department of Justice and other law enforcement partners to ensure the broadest prosecution of money laundering, sanctions violations, and criminal activity related to cryptocurrency.</li>



<li>Wide-scale publicity concerning the new program and its filing requirements. Take the SEC and its user-friendly website. If people cannot easily learn their rights, the law will never work to its full potential.</li>



<li>Ensuring that the confidentiality and anonymity provisions are effectively implemented, and that training occurs throughout both Justice and Treasury to ensure that whistleblower rights are protected.</li>



<li>Mandate that all rewards be paid within 12 months of the government’s collection of sanctions from the wrongdoer.</li>



<li>Strictly follow the Tax Court’s holding in <a href="https://cite.case.law/tc/144/290/">Whistleblower 21276-13W v. Commissioner of IRS, 144 Tax Court 290 (2015)</a> where it was decided that Form 211 need not be filed before a whistleblower provides information to other parts of the Internal Revenue Service (IRS).</li>



<li>Using its authority to narrowly define parts of the law that could be interpreted to restrict whistleblowing, and broadly interpret other provisions to ensure that whistleblowers are not unduly penalized.</li>
</ol>



For example, the SEC’s definition of “voluntary” has been widely criticized as too restrictive, for it cuts off protections for whistleblowers who voluntarily provide information that was not compelled by subpoena or other legal processes. FinCEN must not follow in the SEC’s misguided footsteps on this issue.



On the other hand, FinCEN needs to recognize that participants in illegal activity need to be incentivized to come forward as well, as they are often the best sources of information. The DOJ under the False Claims Act, the SEC under the Dodd-Frank Act, and the IRS under its own law have all approved reasonable balancing tests that permit participants (who did not plan or initiate the crime) to receive a financial reward.



<h2 class="wp-block-heading">The AML advantage</h2>



The AML law expands federal jurisdiction over policing cryptocurrencies. The law covers all types of <a href="https://kkc.com/frequently-asked-questions/anonymous-money-laundering-complaint/">money laundering</a> with broad transnational scope and, for the first time, whistleblowers will receive state of the art protections for reporting violations of sanctions.&nbsp;



FinCEN has already spearheaded strong enforcement actions against crypto exchanges that have broken AML laws, Suspicious Activity Report (SARs) requirements, and the Bank Secrecy Act. These actions often involve large financial sanctions, such as the $100 million in fines in the 2021 <a href="https://www.fincen.gov/news/news-releases/fincen-announces-100-million-enforcement-action-against-unregistered-futures">busting of BitMEX</a>.



In August 2022, the<a href="https://home.treasury.gov/news/press-releases/jy0916"> </a>US Department of the Treasury’s Office of Foreign Assets Control (OFAC) <a href="https://blockworks.co/news/us-treasury-bans-citizens-from-using-mixing-service-tornado-cash">sanctioned</a> Tornado Cash, a virtual currency mixer, for laundering over $7 billion. More recently, <a href="https://www.politico.com/news/2023/02/24/two-major-crypto-exchanges-failed-to-block-sanctioned-russians-00084391">Politico reported that</a> Huobi and KuCoin, two Seychellois crypto exchanges, had allowed sanctioned Russian banks to use their platforms. A loophole permitted crypto buyers to trade with each other using accounts at these banks. These exchanges have not been the subject of legal action thus far.



With the FinCEN whistleblower program set up right, these are all types of cases where the law would encourage whistleblowers to come forward and report wrongdoing themselves.



Under this new law, crypto whistleblowers can report on violations of anti-money laundering laws, failure to comply with SARs and know-your-customer (KYC) requirements, sanctions violations, and misconduct covered under the Bank Secrecy Act. Reporting on these issues is not limited to those employed by crypto exchanges. Anyone with information is welcome to come forward.&nbsp;



Cryptocurrencies have been used to hide illegal money laundering and sanctions violations: Crimes that are designed to be invisible to law enforcement. The incentivization of insiders is key in deterring these types of activities and holding wrongdoers fully accountable.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Stephen M. Kohn, founding partner of Kohn, Kohn, &amp; Colapinto LLP, is one of the nation’s leading qui tam and whistleblower attorneys. Disclosures made by Kohn’s clients have resulted in fraudsters paying over $10 billion in sanctions and restitution to victims of corporate crimes. Kohn has helped draft key whistleblower legislation and regulations, including those incorporated into the Sarbanes-Oxley Act, Dodd-Frank Act, the IRS Qui Tam whistleblower amendments, and the AML Whistleblower Act. He also serves as an Adjunct Professor at Northeastern University School of Law and is the most published author in the world on whistleblowing.</div>


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Crypto Has Too Many Bad Actors. Here’s How To Make Them Pay.

Katherine Ross

Crypto exchange Coinbase, which disclosed receipt of an SEC Wells notice <a href="https://blockworks.co/news/sec-serves-coinbase-in-latest-alleged-crypto-securities-violation">last month</a>, was not the only major crypto company in the regulatory crosshairs. Payments provider BitPay was dealing with its own regulatory troubles.



In an underreported settlement, BitPay and the New York State Department of Financial Services (<a href="https://blockworks.co/tag/nydfs">NYSDFS</a>) came to terms on March 16, after the regulator said the company failed to ensure compliance with anti-money laundering laws and cybersecurity regulations.



“BitPay has fully cooperated with the NYSDFS and is pleased to have resolved this matter. The settlement concerned historical shortcomings in BitPay’s regulatory programs identified in a 2018 and 2021 examination conducted by NYDFS,” BitPay CEO Stephen Pair told Blockworks.&nbsp;



NYSDFS said that it first examined <a href="https://blockworks.co/tag/bitpay" target="_blank" rel="noreferrer noopener">BitPay</a> from July 2018 to December 2018, and “found deficiencies” in regard to its cybersecurity regulations and anti-money laundering (AML) compliance programs. 



“The Virtual Currency Regulation requires that Licensees establish an effective AML program, that, at a minimum, shall provide a system of internal controls, policies, and procedures designed to ensure ongoing compliance with all applicable AML laws, rules and regulations,” the <a href="https://www.dfs.ny.gov/system/files/documents/2023/03/ea20230316_bitpay.pdf">settlement</a> said. The program requires an independent test from personnel at a “regulated entity.”



Similarly, New York’s cybersecurity regulation requires companies to “conduct a periodic risk assessment…to inform the design of the cybersecurity program and update such risk assessment(s) as necessary.”&nbsp;



A second investigation starting in 2019 found that the crypto payments provider&#8217;s cybersecurity and AML programs needed “additional improvement.”&nbsp;



“Throughout the exam period and since, BitPay has steadily enhanced its already rigorous compliance and cybersecurity programs to both fulfill its regulatory obligations and continue to be an example of doing business the right way in the evolving blockchain payments space,” Pair said.



BitPay agreed to a penalty of $1 million.



As part of the settlement, BitPay is required to submit an action plan to the NYSDFS before Sept. 16 this year.



“BitPay has demonstrated its commitment to remediation by devoting significant financial and other resources to enhance its cybersecurity and AML programs,” the NYSDFS said.



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BitPay To Pay $1M to New York’s Financial Services Department

Shalini Nagarajan

India&#8217;s finance ministry announced Tuesday that it has applied money laundering provisions on crypto companies, forcing them to immediately align with the general finance sector.



A notification from the ministry was light on details, but showed the legislation has been applied to crypto trading, transfers of crypto, safekeeping or administration of crypto and provision of crypto. 



Essentially, from now, crypto businesses will be required to supply know-your-customer (KYC) details in case officials ask for this information.



All crypto businesses will now be reporting entities to the Indian government, meaning businesses will be legally required to report suspicious transactions to the Financial Intelligence Unit.&nbsp;



The directive follows <a href="https://www.businesstoday.in/crypto/story/crypto-exchanges-need-to-store-kyc-and-transaction-records-for-5-years-it-ministry-332047-2022-05-02" target="_blank" rel="noreferrer noopener">calls</a> from India’s IT ministry last year, encouraging crypto companies to keep five years worth of user data, including personal “Know-Your-Customer” information, to stay on regulators&#8217; good sides.



Jaideep Reddy, counsel at Trilegal, broke down what the most recent move means for crypto businesses: “Technically the notification appears to come into effect immediately,” Reddy told Blockworks, and pointed out a shortcoming with the sudden announcement.



“A transition provision specifying a period within which compliance was to be achieved would have been ideal. However, one would expect that enforcement authorities would provide reasonable time to covered entities to become compliant.”



Reddy separately elaborated in a <a href="https://twitter.com/jrtechlaw/status/1633338806047834112" target="_blank" rel="noreferrer noopener">Twitter thread</a> that crypto businesses will now be required to maintain reporting standards and KYC/AML norms to sync with other entities like banks, securities intermediaries and payment system operators. 



“In other words, KYC norms are no longer a best practice but a legal obligation,” he tweeted.



The <a href="https://egazette.nic.in/WriteReadData/2023/244184.pdf" target="_blank" rel="noreferrer noopener">move</a> has been welcomed by some parts of the industry, which say it gives businesses some level of clarity as to what types of checks the government wants.



Reports emerged last year that crypto exchanges in India were being <a href="https://inc42.com/features/inside-eds-probe-into-crypto-fintech-startups/#:~:text=The%20News%3A%20Almost%20all%20the,Money%20Laundering%20Act%20(PMLA)." target="_blank" rel="noreferrer noopener">investigated</a> by the Enforcement Directorate, which is responsible for fighting economic crime. WazirX, Coinswitch Kuber, CoinDCX and Zebpay were among exchanges approached by the directorate.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">such businesses need to follow similar reporting standards and KYC/AML norms to other reporting entities like banks, securities intermediaries, payment system operators, etc. In other words, KYC norms are no longer a best practice but a legal obligation. 2/4&mdash; Jaideep Reddy (@jrtechlaw) <a href="https://twitter.com/jrtechlaw/status/1633338808144912384?ref_src=twsrc%5Etfw">March 8, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The crypto landscape in India hasn’t been totally friendly. The government decided to <a href="https://blockworks.co/news/india-introduces-penalty-on-exchanges-individuals-not-complying-with-crypto-tax" target="_blank" rel="noreferrer noopener">retain the 30% tax</a> imposed on crypto profits, on top of a 1% tax deducted at source (TDS), in its latest budget.



Offenders or platforms that don’t adhere to the TDS will be penalized under an amendment to Section 271C of the Income Tax Act. They could either be fined or jailed for terms lasting between 3 months to 7 years.



In October, the Financial Action Task Force (FATF) pushed for member nations to implement a “<a href="https://ciphertrace.com/wp-content/uploads/2022/10/CipherTrace_Travel-Rule-Guide_FINAL.pdf" target="_blank" rel="noreferrer noopener">travel rule</a>” that would track crypto transactions in order to block terrorist financing and other illegal activities. It isn’t clear yet whether India intends to enforce the travel rule.



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All Crypto Companies in India Must Now KYC Users

Sebastian Sinclair

FinCEN, the US Treasury Department&#8217;s financial crimes unit, is zeroing in on DeFi regulation as government agencies scramble for greater industry oversight following the ratification of an executive order on digital assets earlier this year.



Slotted in between remarks on combating fraud and anti-corruption generally, Himamauli Das, the acting director of the Financial Crimes Enforcement Network, said in a <a href="https://www.fincen.gov/news/speeches/prepared-remarks-fincen-acting-director-himamauli-das-during-abaaba-financial-crimes" target="_blank" rel="noreferrer noopener">speech</a> Tuesday his agency was looking at DeFi’s “potential to reduce or eliminate the role of financial intermediaries that play a critical role in our AML/CFT [anti-money laundering/combating the financing of terrorism] efforts.”



The removal of intermediaries is seen by crypto natives as a <a href="https://blockworks.co/news/the-investors-guide-to-defi" target="_blank" rel="noreferrer noopener">major advantage</a> of DeFi, rendering it more efficient and removing counterparty risks, but FinCEN’s financial surveillance focus positions the existence of intermediaries as a strength of status quo. The unit did not immediately return a request for comment.



“We are engaging with relevant US government stakeholders in this effort, and we welcome engagement with industry — including the banking community — to better understand your assessment of the vulnerabilities and risks,” Das said.



The director was speaking during the American Bankers Association ABA Financial Crimes Enforcement Conference in Maryland, which concluded on Wednesday.



As part of the US Treasury Department, the FinCEN is tasked with combating money laundering and terrorism financing by leveraging the financial intelligence it gathers.



In line with ongoing efforts expected to carry over to the new year, Das said his agency would continue to evaluate the evolution of digital assets to try to discover any gaps in the current AML/CFT framework.



To that end, FinCEN will analyze whether further regulations are needed. Its efforts form part of the <a href="https://blockworks.co/news/biden-signs-crypto-executive-order-promoting-responsible-innovation" target="_blank" rel="noreferrer noopener">executive order</a> on digital assets, which was signed by President Joe Biden in March.



Multiple government agencies have since been exploring ways to ratchet <a href="https://blockworks.co/category/regulation" target="_blank" rel="noreferrer noopener">regulatory oversight</a> of cryptoassets, including the SEC and the CFTC which continue to <a href="https://blockworks.co/news/crypto-regulation-cftc-sec-tag-team" target="_blank" rel="noreferrer noopener">jostle for control</a>.



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FinCEN Invites Bankers To Assess DeFi Risk

Tiago Varzim

<div id="highlights-block_62fc9c81313ea" class="highlights">
 <ul>
 <li>European institutions still have a long way to negotiate details before the new rules take effect</li>
 <li>The EU has already approved Markets in Crypto Assets (MiCA),and Transfer of Funds Regulations</li>
 </ul>
 
</div>



Sooner or later, a new regulator will emerge in the European Union (EU) to oversee anti-money laundering rules, including crypto assets as well. The 27 Member-States agreed to a “partial position” this Summer to create a new EU authority for anti-money laundering that would oversee crypto transactions. 



The body will not only help fight money laundering in the European financial markets, but also be given new powers to directly supervise certain types of credit and financial institutions — including crypto asset service providers — if they are considered too risky.



The position is “partial” because EU countries have not yet agreed on the location at which the new authority will have its seat. If they follow the same procedures as other EU regulators, countries and European cities will have to compete with each other to get the new headquarters on their territory.&nbsp;



The so-called Anti-money laundering Authority (AMLA) will “boost the efficient functioning of the Anti-Money Laundering and Countering the Financing of Terrorism (AML/CTF) framework of the Union,” <a href="https://www.consilium.europa.eu/en/press/press-releases/2022/06/29/new-eu-authority-for-anti-money-laundering-council-agrees-its-partial-position/" target="_blank" rel="noreferrer noopener">according to the Council of the EU</a>, the governing body’s legislative branch. A European-wide regulator could “make a strong and useful contribution” in fighting money laundering and the financing of terrorism, given that this is usually a cross-border crime. 



Besides that, AMLA will “contribute to the harmonization and coordination of supervisory practices in the financial and non-financial sectors, the direct supervision of high-risk and cross-border financial entities, and the coordination of financial intelligence units.” Though, this may take several years to be in place.



<h3 class="wp-block-heading">A long political road for AMLA</h3>



This legislation, which is the sixth update of AML rules, was first introduced by the European Commission last year. Members of the European Parliament, who have typically taken a hard stance towards crypto regulation, still have to give their green light before this new regulator can see the light of the day. But there seems to be little disagreement about its existence, including the authority over digital assets, <a href="https://www.theblock.co/post/163556/the-eu-is-on-the-verge-of-creating-a-new-aml-regulator-that-will-oversee-crypto">The Block reported</a>.



This has been a very busy year for EU institutions regarding crypto regulation. Early this Summer there was an agreement on the <a href="https://cms.blockworks.co/tag/MiCA/" target="_blank" rel="noreferrer noopener">Markets in Crypto Assets</a> (MiCA), as well as in the <a href="https://cms.blockworks.co/tag/transfer-of-funds-regulation/" target="_blank" rel="noreferrer noopener">Transfer of Funds Regulations</a>. These two are the pillars of the future crypto regulation in the European single market.



Arguing that the EU is working to stop criminals from circumventing anti-money laundering rules via cryptocurrencies, the Council of the EU and the Parliament announced in June a provisional agreement to extend the scope of the rules to transfers of crypto assets, “making it more difficult for them to be misused for criminal purposes.”&nbsp;



“The aim of this recast is to introduce an obligation for crypto asset service providers to collect and make accessible certain information about the senders and beneficiaries of the transfers,” <a href="https://www.consilium.europa.eu/en/press/press-releases/2022/06/29/anti-money-laundering-provisional-agreement-reached-on-transparency-of-crypto-asset-transfers/" target="_blank" rel="noreferrer noopener">the Council explained at the time</a>, guaranteeing that this would ensure “traceability of crypto-asset transfers in order to be able to better identify possible suspicious transactions and block them.”



<a href="https://www.europarl.europa.eu/news/pt/press-room/20220627IPR33919/crypto-assets-deal-on-new-rules-to-stop-illicit-flows-in-the-eu" target="_blank" rel="noreferrer noopener">According to the EU Parliament</a>, this agreement also covers transactions from so-called unhosted wallets, which are in the custody of a private user, when they interact with hosted wallets managed by crypto-assets service providers. Right now, the Parliament, Council, and Commission are working on the technical aspects of these legislative texts. They have to be approved by the plenary before entering into force.



Absent better privacy tools, <a href="https://www.ledger.com/blog-why-the-eus-transfer-of-funds-tfr-regulation-is-a-threat-to-financial-freedom" target="_blank" rel="noreferrer noopener">critics warn</a> that overzealous regulation of public blockchains could open the door to a regime of financial surveillance, adversely affecting citizen’s freedom.



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EU Considers New ‘Anti-money Laundering Authority’

<div id="highlights-block_62a9dc972ed91" class="highlights">
 <ul>
 <li>Policymakers are optimistic about a deal in late June, but some areas of the bill are still being debated</li>
 <li>Environmental impact and anti-money laundering rules have been a source of contention</li>
 </ul>
 
</div>



European Union policymakers held another meeting yesterday in an attempt to reach an agreement on the Markets in Crypto-Assets (MiCA) bill that will shape crypto development in the European common market.



France, which currently holds the EU presidency, aims to close a deal by the end of this month, <a href="https://www.bloomberg.com/news/articles/2022-06-10/eu-aims-to-clinch-deal-on-landmark-crypto-law-this-month?utm_campaign=socialflow-organic&amp;utm_source=twitter&amp;utm_content=crypto&amp;utm_medium=social" target="_blank" rel="noreferrer noopener">Bloomberg</a> reported last Friday. MiCA has been an ongoing discussion since the European Commission first presented a proposal to the European Parliament in 2020.



The rise of crypto markets&#8217; relevance in 2021 accelerated this discussion, and France wants to achieve this milestone while they hold the presidency, which ends this month — the Czech Republic will take over the role in July.



After today’s meeting, another “trilogue” — EU’s last mile with members of the Parliament (MEPs), EU’s presidency and European Commission officials — will happen on June 30. 



The rush is real in Brussels, according to Mairead McGuinness, European commissioner for financial services and financial stability. 



“I really would like to see a political compromise on our MiCA…under the French presidency”, she told MEPs in a hearing this Tuesday, later adding that the legislation is “so urgent, given recent developments.”



The euro’s stability and investor protection were the main priorities for EU policymakers in the aftermath of problems such as the <a href="https://cms.blockworks.co/?s=terra" target="_blank" rel="noreferrer noopener">TerraUSD stablecoin collapse</a>, which, McGuinness said, “has certainly raised a lot of questions and concerns at many levels.” She also mentioned Celsius&#8217; <a href="https://cms.blockworks.co/celsius-withdrawal-halt-reveals-run-risks-on-other-crypto-banks/">pausing all transfers and withdrawals</a> earlier this week. 



MiCA will set common rules for cryptocurrency regulation in all 27 EU member states, putting European regulators at the helm of digital assets supervision across the union with the help of national authorities.



However, some issues in the legislative package have yet to be settled. According to Bloomberg, EU countries and the EU Parliament still disagree on whether to include non-fungible tokens (NFTs) in MiCA, how to regulate big stablecoins, the division of supervisory responsibilities, and the introduction of a ceiling to limit stablecoins usage as a payment method to prevent currency substitution.



Crypto’s environmental impact is yet another issue to be agreed upon. Blockchain for Europe, which represents international industry players at the EU level, claimed today that the Greens and the Socialists, two of the biggest Parliament groups, are trying to introduce amendments that will oblige all cryptoasset service providers (CASPs) to publicly disclose “info on adverse environmental impact of consensus mechanism used to issue each cryptoasset.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Update on <a href="https://twitter.com/hashtag/MiCA?src=hash&amp;ref_src=twsrc%5Etfw">#MiCA</a> ❗️ Hours before the 3rd trilogue, the Greens and Socialists are trying to introduce amendments that resemble the &quot;<a href="https://twitter.com/hashtag/PoW?src=hash&amp;ref_src=twsrc%5Etfw">#PoW</a> ban&quot; that was already voted down by the <a href="https://twitter.com/Europarl_EN?ref_src=twsrc%5Etfw">@Europarl_EN</a> Details in the 🧵below:&mdash; Blockchain for Europe (@BlockchainforEU) <a href="https://twitter.com/BlockchainforEU/status/1536693911112011783?ref_src=twsrc%5Etfw">June 14, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“These proposed amendments do not answer the question of what happens if either a CASP or a token issuer cannot deliver on the ask. Further, it seems likely that a non-compliant actor would be banned at EU level,” the organization said.&nbsp;



Another remaining question is whether anti-money laundering rules will be included in the MiCA package or if this will be addressed in other legislation.



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EU Negotiators Want To Hammer Out Crypto Bill This Month

Ben Strack

<div id="highlights-block_6245ad3087822" class="highlights">
 <ul>
 <li>The proposal called for crypto firms to reveal info about the sender and receiver of crypto transfers</li>
 <li>Coinbase executive said the measures would unleash a surveillance regime on exchanges, stifle innovation and undermine self-hosted wallets</li>
 </ul>
 
</div>



Two European Parliament committees have voted in favor of measures requiring crypto companies to collect and share data on certain transactions.



The Committee on Economic and Monetary Affairs and the Committee on Civil Liberties, Justice and Home Affairs <a href="https://www.europarl.europa.eu/cmsdata/246608/ECON-LIBE%20Voting%20Session%20-%2031%20March%20(amendments)%20RESULTS.pdf" target="_blank" rel="noreferrer noopener">voted</a> to expand anti-money laundering requirements in the crypto space.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">BREAKING: The ECON &amp; LIBE committees of the EU Parliament voted in favor of the FTR compromises D &amp; E that crack down on “unhosted” wallets. Entire regulation draft to be voted on later today, but will certainly go through. Breakdown of the vote &amp; more updates in this thread.&mdash; Patrick Hansen (@paddi_hansen) <a href="https://twitter.com/paddi_hansen/status/1509536318585454597?ref_src=twsrc%5Etfw">March 31, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Spokespeople for the committees did not immediately return a request for comment.



European Union ambassadors <a href="https://www.consilium.europa.eu/en/press/press-releases/2021/12/01/anti-money-laundering-council-agrees-its-negotiating-mandate-on-transparency-of-crypto-asset-transfers/" target="_blank" rel="noreferrer noopener">agreed on a mandate</a> in December to negotiate with the European Parliament on a proposal to extend the scope of fund transfer rules to include certain cryptoassets.&nbsp;



The proposal aimed to require crypto service providers, such as exchanges, to collect and share information about the sender and beneficiary of these asset transfers — a practice that payment service providers currently do for wire transfers.



Legislators hoped to ensure traceability of transfers between crypto service providers and so-called “unhosted wallets” so as to be able to better identify possible suspicious transactions and potentially block them.



An unhosted wallet is a term used by the <a href="https://www.fatf-gafi.org/" target="_blank" rel="noreferrer noopener">Financial Action Task Force</a> and <a href="https://www.fincen.gov/" target="_blank" rel="noreferrer noopener">Financial Crimes Enforcement Network</a> and adopted by other government and regulatory bodies. It means that an individual maintains their own private keys — known in the crypto industry as a “wallet” or “self-hosted wallet” to delineate between assets controlled by a financial institution acting as a custodian and an individual.



Requirements to check if the information on the payer or payee is accurate is to be imposed on crypto transfers that exceed 1,000 euros, according to <a href="https://www.europarl.europa.eu/doceo/document/CJ12-PR-704888_EN.pdf" target="_blank" rel="noreferrer noopener">a draft report</a>.



Slovenian Finance Minister Andrej Šircelj said in December that the proposal was an important step toward “closing the gaps in our financial systems that are malevolently used by criminals to launder unlawful gains or finance terrorist activities.”



Markus Ferber, who has served in the European Parliament since 1994 and is a member of the European People’s Party (EPP), took to Twitter Thursday to share his opposition to the proposal.



“We need to take AML risks in crypto seriously, but should not ban unhosted wallets,” Ferber tweeted. “This would be the equivalent of banning cash — unnecessary and disproportionate!”



Fellow European Parliament member Paul Tang responded to Ferber’s tweet, noting that passing the proposal would not ban anything.&nbsp;



“Instead we oblige verification to prevent crime and corruption through unhosted wallets,” Tang wrote. “Crime and corruption aren&#8217;t innovation, I&#8217;m sure a law-and-order party like the German EPP would agree?”



Paul Grewal, chief legal officer at crypto exchange Coinbase, wrote in <a href="https://blog.coinbase.com/making-your-voice-heard-ahead-of-thursdays-critical-eu-vote-f03730e83e5c" target="_blank" rel="noreferrer noopener">a March 27 blog</a> that “bad facts make bad law,” noting the EU’s upcoming vote.



“If adopted,” he wrote, “this revision would unleash an entire surveillance regime on exchanges like Coinbase, stifle innovation, and undermine the self-hosted wallets that individuals use to securely protect their digital assets.”



Patrick Hansen, head of strategy and business development at Unstoppable Finance, said in a Twitter post that formal meetings about these measures, known as “trilogue,” could take a couple of months.&nbsp;



“We have lost a battle, but this is far from over,” he said.



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