US Treasury Warns of Growing Terrorist Use of Virtual Currencies, Calls for Congressional Action

The US Treasury Department has expressed concerns about the potential increase in the use of virtual currencies and digital assets by terrorist groups, unless Congress approves new regulatory measures. Deputy Secretary Wally Adeyemo highlighted the evolving tactics of groups like al Qaeda, Hamas, and state actors such as Russia and North Korea, who are increasingly utilizing virtual currencies to conceal their identities and transfer resources.

In his testimony before the Senate Banking, Housing and Urban Affairs Committee, Adeyemo emphasized the urgency of expanding enforcement efforts to combat illicit financial activities perpetrated by "malign actors." He stressed that without additional regulatory tools from Congress, the use of virtual assets by terrorist groups is likely to grow.

While acknowledging some success in disrupting illicit finance within the digital ecosystem, Adeyemo underscored the need for broader measures to prevent terrorist financing through virtual currencies. He cited instances where North Korea employed sophisticated cyber heists and anonymity-enhancing technologies like mixers to acquire and launder illicit revenue. Additionally, he noted Russia's utilization of alternative payment mechanisms, including stablecoins like tether, to circumvent sanctions and fund its military actions against Ukraine.

Adeyemo urged Congress to pass legislation aimed at bolstering the Treasury's capabilities to combat illicit finance through virtual assets. This includes implementing secondary sanctions targeted at foreign digital asset providers facilitating illicit activities. He also called for closing regulatory gaps by explicitly covering entities such as virtual asset wallet providers and cryptocurrency exchanges that emerged after current laws were enacted.

Coinbase Global and Circle Internet Financial echoed the call for regulatory action in a letter addressed to Senate Majority Leader Chuck Schumer and House Speaker Mitch McConnell. They emphasized the importance of enacting regulations for stablecoins and digital asset market structures to combat illicit finance and address regulatory arbitrage risks.

Treasury had previously submitted recommended reforms to the committee in November, aligning with legislative efforts to address the challenges posed by illicit finance through virtual assets. Adeyemo reiterated the department's commitment to collaborating with lawmakers on this critical issue.

By fLEXI tEAM