U.S. Treasury Department Claims Criminals and North Korean ‘Cyber Actors’ Use DeFi To Launder Money

The U.S. Department of the Treasury released a new report on Thursday outlining what it argues are the illicit finance risks inherent to decentralized finance (DeFi).

The Treasury Department says criminals are taking advantage of DeFi platforms that aren’t compliant with US anti-money laundering (AML) and countering financing of terrorism (CFT) regulations.

“The assessment finds that illicit actors, including ransomware cybercriminals, thieves, scammers, and Democratic People’s Republic of Korea (DPRK) cyber actors, are using DeFi services in the process of transferring and laundering their illicit proceeds.

To accomplish this, illicit actors are exploiting vulnerabilities in the US and foreign AML/CFT regulatory, supervisory, and enforcement regimes as well as the technology underpinning DeFi services. In particular, this assessment finds that the most significant current illicit finance risk in this domain is from DeFi services that are not compliant with existing AML/CFT obligations.”

The Treasury Department says that even decentralized financial institutions are required to adhere to the Bank Secrecy Act, which it claims many DeFi platforms fail to do.

“In some cases, industry providers may purposefully seek to decentralize a virtual asset service in an attempt to avoid triggering AML/CFT obligations, without recognizing that the obligations still apply so long as the provider continues to offer covered services.”

The report recommends expanding AML/CFT regulations to encompass all DeFi platforms and strengthening the supervision of those regulations to deal with projects that might be actively skirting them.

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