Same Risks, Same Safeguards: Modernizing Illicit Finance Controls for Digital Assets

Technologies and payment methods change, but stopping illicit finance and furthering America's foreign policy goals remains imperative. In recent months, BPI has submitted a series of comment letters to regulators regarding the importance of effective anti-money laundering, countering the financing of terrorism and sanctions programs for payment stablecoin issuers and the crypto ecosystem more broadly. 

Here's where regulators are getting it right and where there are opportunities to strengthen the regime. 

What's Right

• Appropriate focus and concern: FinCEN, OFAC, the OCC, the FDIC and the NCUA recognize the AML/CFT risks posed by payment stablecoin issuers and other entities in the digital asset ecosystem. They have proposed robust AML/CFT requirements for Permitted Payment Stablecoin Issuers' operations in the primary market (with direct counterparties).

• Commitment to regulatory coordination: Effective coordination is crucial to stop illicit finance. The relevant federal agencies should work together to establish robust requirements for the crypto ecosystem to help ensure that those entities help combat illicit finance and support the federal government's national and geopolitical priorities. Some of the regulators' proposals have included formal consultation requirements with FinCEN for AML/CFT enforcement actions or significant AML/CFT supervisory actions, and similar provisions should be included in all of the regulators' AML/CFT rules. 

• Focus on effectiveness, not process: For years, bank-focused illicit finance programs have prioritized box-checking instead of focusing resources on the highest-risk matters and generating actionable intelligence for law enforcement. New proposals from regulators appear to be shifting priorities and incentives in the right direction, and those same positive shifts are showing up in proposals for addressing illicit finance in crypto. 

What Should Change 

• Inadequate coverage for the secondary market: The current proposals leave meaningful gaps in AML/CFT obligations in the secondary market for payment stablecoins and other digital assets. Most illicit activity currently occurs in the secondary market, but recent proposals generally fail to impose sufficient AML obligations on secondary-market actors such as decentralized finance (DeFi) firms, certain digital asset custodians and exchanges. 

For decades, banks have been the first line of defense to stop illicit finance. Now is the moment to put in place effective policies to ensure that crypto market participants can play that same role, so crypto does not become a permanent means by which criminals can operate undetected.

Read Our Recent Perspectives

• Blog Post: A More Effective AML Regime Puts Flexibility First
• Comment Letter: FDIC AML/CFT Approach, Proposal for Stablecoin Issuers
• Comment Letter: OCC AML/CFT Approach, Proposal for Stablecoin Issuers
• Comment Letter: AML CFT Program Rule
• Comment Letter: FinCEN and OFAC GENIUS Act Implementation