Treasury nominee Yellen is looking to curtail use of cryptocurrency
Crypto crackdown? —
Yellen argues many cryptocurrencies are used “mainly for illicit financing.”
Timothy B. Lee
Cryptocurrencies could come under renewed regulatory scrutiny over the next four years if Janet Yellen, Joe Biden’s pick to lead the Treasury Department, gets her way. During Yellen’s Tuesday confirmation hearing before the Senate Finance Committee, Sen. Maggie Hassan (D-N.H.) asked Yellen about the use of cryptocurrency by terrorists and other criminals.
“Cryptocurrencies are a particular concern,” Yellen responded. “I think many are used—at least in a transactions sense—mainly for illicit financing.”
She said she wanted to “examine ways in which we can curtail their use and make sure that [money laundering] doesn’t occur through those channels.”
Blockchain-based financial networks are attractive to criminals because they do not require users to identify themselves—as the law requires most conventional financial networks to do. Because no individual or organization controls these networks, there’s no easy way for governments to force them to comply with money-laundering laws.
So instead of trying to force the networks themselves to comply, regulators in the US—and many other jurisdictions—have focused on regulating bitcoin exchanges that help users trade between dollars and cryptocurrencies. Once a bitcoin exchange identifies who initially received a particular bitcoin payment, law enforcement can often trace subsequent payments through a blockchain network’s open payment ledger.
In December, Trump’s outgoing team at the Financial Crimes Enforcement Network—a unit of the Treasury Department focused on money laundering—proposed a new set of rules to tighten the screws on cryptocurrency-based money laundering.
Under the new rules, cryptocurrency-based exchanges would need to file transaction reports with FinCEN any time a customer made a cryptocurrency transaction worth more than $10,000. This would mirror existing rules requiring conventional banks to report when customers make cash withdrawals or deposits worth more than $10,000.
Even more controversial in the cryptocurrency world, FinCEN wants to impose new record-keeping requirements for transactions involving users who manage their own private keys—dubbed “unhosted wallets” by FinCEN. Under FinCEN’s proposal, if a cryptocurrency exchange’s customer sends more than $3,000 to an unhosted wallet, the exchange would be required to keep a record of the transaction, including the identity of the customer who initiated the payment.
These new rules didn’t take effect before Trump left office, so the incoming Biden team will need to decide what to do with them. The Biden administration could sign off on the existing rules, rewrite them, or scrap them altogether. Yellen’s Tuesday comments suggest that she is unlikely to scrap the rules. If anything, the Treasury Department is likely to consider additional regulations of the blockchain economy over the next four years.