Former Federal Reserve chair and Treasury secretary nominee Janet Yellen is addressing the potential use of cryptocurrency for illicit financing.
Speaking at a confirmation hearing with the U.S. Senate Finance Committee, Yellen answered questions from Senator Maggie Hassan about the potential for terrorists to use digital assets to fund illicit activities.
“Cryptocurrencies are a particular concern. I think many are used, at least in a transaction sense, mainly for illicit financing and I think we really need to examine ways in which we can curtail their use and make sure that anti-money laundering doesn’t occur through those channels.”
The comments come as the blockchain analytics firm Chainalysis releases its latest overview on the real-world use of crypto among bad actors. It finds that crypto-related crime dropped to 0.34% of total transaction volume in 2020, down from 2.1% in 2019.
In addition, a study from SWIFT released in September found that criminals prefer to use cash for money laundering by a wide margin.
“Identified cases of laundering through cryptocurrencies remain relatively small compared to the volumes of cash laundered through traditional methods.”
As technologies behind cryptocurrencies advance, Yellen says regulatory authorities must also evolve along with it to combat terror financing.
“The technologies to accomplish this change over time. We need to make sure that our methods for dealing with these matters with tech terrorist financing change along with changing technology.”
A report released in December from the blockchain analysis firm Elliptic found that individual and small cell terrorist supporters have “been identified as attempting to fund activity using cryptocurrencies in some limited instances.”
The group says criminals are looking to exploit a lack of regulation in the international cryptocurrency ecosystem, and notes the FBI is concerned criminals could adopt privacy coins like Monero. But the firm also cautions against unsubstantiated and hyperbolic claims on how often crypto assets are used for crime.
“Cryptocurrencies are frequently thought of in connection to their potential use in money laundering and terrorist financing. But public discussion surrounding cryptocurrency crime trends is often anecdotal, sensationalized, and of little practical use to compliance officers at cryptocurrency businesses.”
Speaking at the Canada FinTech Forum in Montreal in 2018, Yellen flatly said that Bitcoin is not useful as a currency or store of value.
“It has long been thought that for something to be a useful currency, it needs to be a stable source of value, and Bitcoin is anything but. It’s not used for a lot of transactions, it’s not a stable source of value, and it’s not an efficient means of processing payments. It’s very slow in handling payments. It has difficulty because of its very decentralized nature.”
Back in 2015, Yellen encouraged a regulatory approach to digital assets that doesn’t stifle innovation.
“The costs and benefits of developing new statutes or regulations related to digital currencies should be weighed carefully. New regulation, such as the creation of special licenses for digital currency providers, may work to strengthen the soundness of virtual currency schemes and increase public trust in the products, as some may refrain from investing in or using digital currencies due to a perceived legal uncertainty and/or lack of consumer protection.
On the other hand, new regulation would need to be flexible enough to address effectively the evolving nature of digital currency systems and technology while not stifling innovation.”Don't Miss a Beat – Subscribe to get crypto email alerts delivered directly to your inbox
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Featured Image: Shutterstock/Greg Kushmerek