treasury department

Circle CEO Tells US Treasury Department to Provide a "Meaningful Safe Harbor" for the Crypto Industry

Jeremy Allaire, the Chief Executive Officer (CEO) of Circle, a US-based peer-to-peer payments company, has sent a letter to the United States Treasury Department calling for an improved regulation that can offer a “meaningful safe harbor” for players within the cryptocurrency ecosystem.

Allaire’s letter was inspired by the recent news that the outgoing Donald Trump’s administration through the Treasury Department is planning to enact a regulatory ban over self-hosted crypto wallets.

In his letter, Jeremy recanted his experience at the beginning of the internet boom decades ago noting that he correctly predicted that the then-emerging technology will take over open communications networks despite the imminent fears of risks that prevailed at the time. Jeremy noted that the events of 1996 are seemingly playing out with open-source blockchain networks of today, a move the government is planning to clamp down on.

He also noted that the innovations of public blockchains are currently been used around the world to service clients across various industries and that any attempt to bring in strict regulations will give China an upper hand in the race for supremacy in the Blockchain and cryptocurrency ecosystems.

Allaire noted that the industry is working assiduously to prevent the technology from been harnessed by bad actors, which is one of the basic and biggest fears of the Treasury Department. Per the Circle CEO’s words:

“We have focused much of our effort on the safe and secure delivery of our technology to our growing list of clients across multiple industries. The promise of public blockchains is based in part on the security of our technology. Our industry is intensely focused on addressing concerns about the potential for financial crimes that exist with blockchain transactions and I am equally sensitive to the Treasury’s focus on the same.”

The CEO then suggested that the Treasury Department should give the industry players about a year or two to implement technologies that can help in ensuring compliance with Know Your Customer (KYC) policies and other transaction-reporting requirements, a move that will not hinder the innovations currently available in the blockchain ecosystem.

Jeremy Allaire’s proposal echoes some US lawmakers who have also expressed concerns over the proposed legislation as reported by Blockchain.news.

Image source: Blockchain.news

The US Treasury Department Imposes Sanction on Suex Crypto Exchange, Accused of Facilitating Ransomware Transactions

The U.S. Treasury Department has announced that it will impose a sanction on the Suex cryptocurrency exchange, which is registered in the Czech Republic.

On Tuesday, September 21, the U.S. Treasury Department disclosed taking such an action against the Suex crypto exchange for allegedly playing a role in facilitating financial transactions for ransomware actors.

Deputy Treasury Secretary Wally Adeyemo told reporters that Suex helped facilitate illegal activity “for their own illicit gains” and had “facilitated transactions involving illicit proceeds for at least eight ransomware variants.”

He further said that more than 40% of the firm’s known transaction history is “associated with illicit actors.”

Adeyemo stated that exchanges such as Suex are critical to cyberattackers’ ability to extract profits, saying that this was the first such action by the Office of Foreign Assets Control (OFAC) against a digital currency exchange and comes after a series of cyberattacks crippled several industries and even threatened U.S. government agencies.

The Treasury mentioned that ransomware payments amounted to more than $400 million in 2020 alone, four times more than that of 2019.

The new sanction means it will be much more difficult for Suex cryptocurrency exchange to do business with U.S. entities. U.S. citizens are typically banned from carrying out transactions with sanctioned entities.

The Treasury also stated that U.S. companies that engage in certain activities with sanctioned actors could be penalized or face enforcement actions, even if they are unaware of such fact.

According to one U.S. official, the aforementioned sanctions aim to disrupt the illicit financial underpinnings of the ransomware economy, which often use cryptocurrencies to facilitate attacks.

Ban on Ransomware Payments

The move by the U.S. Treasury Department is part of a wider administration strategy to discourage ransomware attacks, in which hackers lock up victim’s computers with data-encrypting malware and then demand payments, especially in cryptocurrency, to unlock them.

The U.S. government sees ransomware as a national security threat and criminal menace and urges companies to report extortion attempts and better protect themselves from them.

This year, cyberattacks attributed to Russia-based groups led to the shutdown of the country’s largest meat supplier and a major fuel pipeline operator Colonial Pipeline.

In June, U.S. President Biden warned his counterpart Russian President Vladimir Putin that he expected Moscow to crackdown ransomware attack activities coming from Russia.

In July, President Biden renewed his warning, stating that the U.S. would take any necessary action to defend critical infrastructure against cyberattack.

In October 2020, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) started sanctioning individuals and institutions that help facilitate payments of ransoms amid a string of ransomware attacks witnessed during that time.

The OFAC stated during that time that the demand for ransomware payments, mostly the use of cryptocurrencies, surged significantly during the Covid-19 pandemic as cybercriminals continued to target online systems to disrupt government entities and businesses for Americans.

The Rise of Crypto is Not a Threat to the US Dollar, says Treasury Executive

Veteran U.S. Treasury Deputy Secretary Adewale “Wally” Adeyemo is unperturbed that the growth of digital currencies like Bitcoin (BTC) is a threat to the dominance of the U.S. Dollar.

Adeyemo is optimistic that the current path the U.S. economy is charting through the signing of the Infrastructure Bill will help keep the Dollar’s dominance intact.

“As our economy grows, it is an opportunity for the global economy to grow and as that happens, the dollar will remain the dominant currency in the world as well,”

The Treasury Executive says despite the potential benefits that digital currencies brandish, some risks are often attached to their adoption and usage. However, he believes the risks can be curtailed by collaborating with regulators in other countries to help reduce the chances of using them for illicit transactions.

“We know that digital assets have the ability to be used by those who want to illicitly move money through the system in a way that doesn’t touch the Dollar and that we can’t see as easily. But we do think that ultimately working together with countries around the world, we can address this risk by calling on the creators of digital assets to follow the rules around anti-money laundering more closely,” he said.

Another clear major threat of using digital currencies, which according to Adeyemo, involves Central Bank Digital Currencies (CBDCs), is bypassing sanctions levied by the American government.

According to the International Monetary Fund (IMF), about 110 economies are actively developing CBDCs, with Russia amongst the pack. In fact, the Kremlin has announced plans to launch a pilot test for its digital Ruble in 2022, after which it will decide whether to launch the new form of money officially.

Adeyemo noted that even though “a digital ruble or other digital currencies come into place, there will still be scope for our sanctions to have an impact on their economies simply because the global economy is still inter-connected.”

The robust nature of the U.S. economy and the Dollar’s relevance in global transactions have made the world’s reserve currency shielded from the various risks the advent of cryptocurrencies presents.

US Treasury Department Concerns NFTs Crime of Money Laundering

The growing popularity of digital artworks as highly valued non-fungible tokens (NFTs) is now a major financial red flag as the United States Treasury Department believes they could be a vital tool for money laundering.

According to a new “Study of the facilitation of money laundering and terror finance through the trade in works of art” as conducted by the Treasury Department, the claim that money launderers can hide behind NFTs to move large sums of money is very high.

“The emerging online art market may present new risks, depending on the structure and incentives of certain activity in this sector of the market (i.e., the purchase of NFTs, digital units on an underlying blockchain that can represent ownership of a digital work of art),” the report reads.

NFTs became more popular in the past 2 years as collections like CryptoKitties and Bored Ape Yacht Club (BAYC) started pricing at very huge valuations. While legacy NFT marketplaces like OpenSea have hit monthly transaction values upwards of $4 billion, showing how well collectors inject capital into the market, it is not uncommon for NFT artworks to price in millions of dollars. Blockchain.News reported in March 2021 that Beeple’s “Everydays”, a collage of the artists’ work for 5000 days sold for $69 million in Ethereum.

With huge valuations like this possible, the Treasury department argues that someone that has laundered some funds can easily use it to purchase an NFT to an unsuspecting seller and resell it to obtain clean cash. That transactions like this can take place Peer-2-Peer (P2P) even makes them untrackable, another concern the regulator has.

While traditional auction houses have started hosting NFT-focused auctions, the department believes they may not have the requisite technical knowledge to conduct the right verifications.

“Moreover, traditional industry participants, such as art auction houses or galleries, may not have the technical understanding of distributed ledger technology required to practice effective customer identification and verification in this space,” the report said.

With the focus on NFT now, the emergence of new regulations to crack down on the space in the mid to long term will not come as a surprise.

The New House Financial Services Committee Head Wants To Postpone Crypto Tax Measures

Representative Patrick McHenry, a Republican from the United States, sent a letter to the Treasury Department in which he asked for clarification on a portion of the digital asset tax that had been poorly drafted.Patrick McHenry, who will take over as chair of the United States House Financial Services Committee in January, has requested that the United States Treasury delay the implementation of a provision of the Infrastructure Investment and Jobs Act that deals with the collection of taxes on digital assets.On December 14, a letter containing questions and concerns regarding the scope of Section 80603 of the Act was delivered to Janet Yellen, who is the Secretary of the United States Treasury. The letter was sent by McHenry.In the letter, he asked for clarification on a section of the bill that deals with the taxation of digital assets and is scheduled to go into effect in 2023. He stated that the section was poorly written and could put people’s privacy at risk.According to him, the provision requires the government to recognize digital assets as the equivalent of currency for the purposes of taxation. This may put the privacy of American citizens at risk and have a negative effect on innovation.In accordance with the requirements outlined in the section of the tax code titled – Information Reporting for Brokers and Digital Assets, brokers are obligated to report specific information regarding their transactions involving digital assets to the Internal Revenue Service. This information must be provided in a specific format (IRS).There is a provision in the Act that mandates disclosure to the Internal Revenue Service of any digital asset transactions that are valued at more than $10,000 by any person or corporation that is engaged in commerce or business. The amount of $10,000 is the minimum that must be reported for this requirement.The requirement was contested at the beginning of this year by Coin Center, a non-profit advocacy organization that focuses on blockchain technology. The organization has taken legal action against the Treasury Department, arguing in their complaint that the regulation would subject people in the United States to an extensive surveillance program.On Twitter, Senator Rob Portman shared a letter from Jonathan Davies, the United States Assistant Secretary for Legislative Affairs, which stated that parties such as cryptocurrency miners and stakers are not subject to the new law. Portman is the one who actually mailed Davies’ letterAt the end of his letter, McHenry requested that the Treasury publish the regulations outlined in the section as quickly as possible and push back the effective date of the section in order to allow “market players” more time to comply with any additional obligations that may arise.This is the second correspondence that McHenry has sent to Yellen so far this year. On January 26, she received a letter from him in which he urged the Secretary of the Treasury to provide more clarification about the definition of a broker.

U.S. Senators Urge Treasury and IRS for Swift Cryptocurrency Tax Rule Implementation

A group of seven U.S. Senators, including prominent figures Elizabeth Warren and Bernie Sanders, submitted a letter to Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel. This letter voiced the Senators’ concerns regarding a significant delay in implementing a proposed rule concerning tax reporting requirements for cryptocurrency brokers. The rule, designed to bridge a substantial cryptocurrency tax gap, has seen a two-year delay, pushing its effective date to 2026 for transactions occurring in 2025.

The proposed regulation is a response to the growing crypto tax gap, which, as of 2022, was believed to cost the IRS around $50 billion annually. This loss stems from either consumers’ lack of understanding regarding crypto transactions’ tax implications or deliberate tax evasion by malicious actors. By instituting reporting requirements for crypto brokers, the rule aims to provide both crypto users and the IRS with essential information to ensure accurate tax reporting and collection.

The proposed rule outlines a broad definition of “brokers” to include any party facilitating cryptocurrency sales while having knowledge about the seller and the transaction. It also defines “digital assets” as a “digital representation of value” recorded on a cryptographically secured distributed ledger or similar technology. These definitions are in line with the language contained in the Infrastructure Investment and Jobs Act, providing a legal basis for the proposed regulations.

The Senators expressed their alarm over the self-imposed two-year delay in implementing the rule, arguing that this postponement contradicts the directives of the bipartisan Infrastructure Investment and Jobs Act. The delay could potentially lead to a significant loss in tax revenue, estimated to be billions of dollars in the initial years of implementation, according to the Joint Committee on Taxation. Moreover, the delay offers an extended window for crypto industry lobbyists to undermine the administration’s efforts to establish basic reporting requirements, at a time when there’s already opposition to the recently enacted reporting mandates.

Senator Warren highlighted the broader implications of the delayed rule on October 11, referring to cryptocurrency as a “not-so-secret financial weapon” used by Hamas amidst its conflict with Israel. The urgency for implementing crypto tax rules also ties into global concerns regarding the misuse of cryptocurrencies for illicit activities.

In light of the concerns raised, the Senators urged the Treasury Department and the IRS to expedite the implementation of the proposed rule to uphold tax law integrity, ensure clarity for law-abiding taxpayers, and secure crucial tax revenue from a largely unregulated crypto sector. They have requested an update on the efforts towards this goal by October 24, 2023.

US Government Removes Cryptocurrency AML Provisions from NDAA

The United States government recently made a significant move by removing two key provisions from the National Defense Authorization Act (NDAA) that aimed to address Anti-Money Laundering (AML) concerns in the realm of cryptocurrency. This action marks a notable shift in the government’s approach to regulating digital assets.

Legislative Background and Provisions

The NDAA, primarily a legislation for authorizing the country’s defense department expenditures, often includes various amendments. In this context, two amendments specifically targeted the oversight of cryptocurrency transactions to mitigate money laundering risks.

Risk-Focused Examination System: The first provision involved the U.S. Secretary of the Treasury collaborating with banking and governmental regulators to establish a comprehensive review system for financial institutions dealing in cryptocurrencies. This system was intended to focus on risk assessment and compliance with existing AML frameworks.

Combatting Anonymous Transactions: The second provision dealt with anonymous crypto asset transactions, particularly those involving crypto mixers and tumblers. It mandated a detailed report on the transaction volumes associated with sanctioned entities and the regulatory measures taken by other jurisdictions in this context.

Implications of Removal

It is clear that the United States government has shifted its position on strong crypto laws, particularly those linked to anti-money laundering, as seen by the elimination of these sections. This decision was made after recent discussions on concerns over the facilitation of terrorist financing and money laundering carried out by cryptocurrency. Over the course of a hearing that took place on November 15, the Financial Services Committee of the United States House of Representatives discussed unlawful actions that take place inside the cryptocurrency ecosystem. These activities included the role that exchanges and decentralized finance providers play in combating money laundering and terrorist funding.

The Digital Asset Anti-Money Laundering Act of 2022 and the Responsible Financial Innovation Act were the initial sources of inspiration for the modifications. These pieces of legislation were drafted with the intention of establishing safeguards against occurrences in the cryptocurrency business that are comparable to the collapse of FTX. These were put up by a group of senators, which included Cynthia Lummis, Elizabeth Warren, Kirsten Gillibrand, and Roger Marshall, among others.

Taking these anti-money laundering measures linked to cryptocurrencies out of the National Defense Authorization Act (NDAA) highlights the continuing dispute and complexity surrounding bitcoin legislation. Despite the fact that it demonstrates a more circumspect attitude by the United States government in terms of placing stringent rules on the cryptocurrency industry, it also raises issues over the future direction of anti-money laundering efforts in the digital asset area.

Treasury Secretary Yellen Highlights Economic Recovery and Addresses Financial Risks

In her testimony before the Committee on Financial Services on February 6, 2024, U.S. Treasury Secretary Janet L. Yellen provided a comprehensive update on the state of the U.S. economy and the steps being taken to maintain financial stability. Secretary Yellen pointed to the historic recovery driven by the Biden Administration over the past three years, highlighting strong GDP growth, significant inflation reduction, and a healthy labor market. She noted the increase in the prime-age labor force participation rate and a continuous sub-4 percent unemployment rate, marking the longest streak in 50 years. Additionally, Yellen underscored a substantial increase in household median wealth, attributing it to the largest three-year gain on record.

The core of Yellen’s testimony was dedicated to the resilience of the U.S. financial system, emphasizing the role of the Financial Stability Oversight Council (FSOC) in monitoring a broad spectrum of risks. These include challenges from the real estate sectors, geopolitical conflicts, technological developments, and the specific response to the failure of two regional banks in March 2023 to prevent wider banking system contagion.

Yellen outlined five key areas of focus for the FSOC, detailed in its 2023 annual report:

Banking Sector and Nonbank Financial Institutions: Efforts to review capital measures, improve resolvability at large banks, and address vulnerabilities from uninsured deposits. The risks posed by nonbank financial institutions, including liquidity mismatch and leverage, are also under scrutiny, with the Securities and Exchange Commission taking steps to address these issues in hedge funds and other investment funds.

Climate-Related Financial Stability Risks: Enhancing assessment efforts and coordination around climate-related risks, promoting disclosures to enable investors and financial institutions to factor these risks into their decisions.

Cybersecurity Risks: Bolstering protections through information sharing and partnerships between state and federal agencies and the private sector.

Artificial Intelligence in Financial Services: Monitoring the benefits and risks associated with AI, including cyber and model risks, while encouraging continued expertise and monitoring capacity development.

Digital Assets: Addressing risks from crypto-asset platforms and price volatility, advocating for enforcement of applicable laws and regulations, and calling on Congress to pass legislation regulating stablecoins and crypto-assets not classified as securities.

Secretary Yellen’s testimony reflects the administration’s commitment to sustaining economic growth while navigating the complexities of modern financial risks. It underscores the importance of regulatory vigilance and legislative action in areas like digital assets and climate change, vital for the long-term health of the U.S. economy and financial system.