Anonymity allows crypto assets to finance illegal activities, a senior US regulator official has claimed, posing national security risks that need to be addressed.
Christy Goldsmith Romero, commissioner of the United States Commodity Futures Trading Commission, said that cryptocurrencies are being used to finance cybercrime, whose victims include individuals, businesses, hospitals and critical infrastructure.
“Fraud is a hallmark of digital asset markets, the human cost of which cannot be overlooked,” Romero said at a City Week conference in London, adding that addressing the lack of visibility in crypto markets is imperative.
“It is essential that governments and, in particular, the industry address what makes cryptocurrencies so attractive to illicit finance: the attraction of anonymity,” he stated.
Law-abiding cryptocurrency companies must not use “scramblers” or software tools that effectively anonymize users by pooling and mixing cryptocurrency from thousands of addresses.
“Congress is already studying new laws on anonymity and digital identity,” Romero said.
Compliant cryptocurrency companies must demonstrate that they have internal controls in place to prevent money laundering and terrorist financing.
Last year, the United States imposed sanctions on virtual currency mixer Tornado Cash, alleging that it helped hackers, including those from North Korea, launder the proceeds of cybercrime.
“It is possible for all cryptocurrency companies to distance themselves from mixers and anonymity-enhancing technology while still offering clients financial privacy,” Romero added.
Regulators in the United States, the European Union, the United Kingdom, and other countries are trying to come up with cryptocurrency before global standards for a borderless industry are agreed upon and introduced.
“As a result, different people are doing different things and, yes, absolutely, companies are choosing where to set up shop,” John Schindler, secretary-general of the Financial Stability Board (FSB), the G20 coordinator for financial standards, told the conference.
The FSB will shortly publish the final version of the recommendations to regulate crypto assets.
