The U.S. Treasury Department has reported that despite the growing trend of illicit actors turning to cryptocurrencies for money laundering and financing, cold hard cash remains their preferred tool.
In its 2024 National Risk Assessments on Money Laundering, Terrorist Financing, and Proliferation Financing, the Treasury shed light on the various threats, vulnerabilities, and risks associated with illicit finance within the United States.
Digital Assets Threat on the Rise
Treasury officials have observed that despite fiat currencies remaining the predominant medium for money laundering and terrorist financing, the threat posed by digital assets is on the rise.
According to the 2024 National Money Laundering Risk Assessment, fraud, particularly through investment schemes and healthcare fraud, remains the leading cause of money laundering activities. The report highlights an increase in fraud involving technological advancements, such as telemedicine and scams related to virtual asset investments.
Meanwhile, terrorist groups, including ISIS and Hamas, are increasingly turning to virtual assets for funding. This growing trend has raised concerns among lawmakers in recent months. A report by The Wall Street Journal in October pointed out that Hamas, among other militant groups, utilized crypto as a financing tool ahead of attacks in Israel.
The report also found that the most frequent financial interactions between individuals in the United States and foreign terrorist organizations involve direct solicitation of funds or attempts to transfer funds to these groups, similar to the trend in 2022. These transactions are conducted using cash, registered money services businesses, and, in some instances, virtual assets.
DeFi and Stablecoins are a Rising Concern
The Treasury further emphasized the challenges posed by decentralized finance (DeFi), specifically highlighting that such services, considered financial institutions under the Bank Secrecy Act (BSA), are obligated to comply with anti-money laundering (AML) and counter-financing of terrorism (CFT) regulations.
Despite these requirements, the Treasury has observed a significant compliance shortfall among many DeFi services covered by the BSA, which is exploited by illicit actors.
The report highlights the interest of criminals in exploiting emerging financial services, including DeFi platforms and online gaming, raising concerns about the anonymity provided by online gaming and the sector’s considerable size and rapid growth, which give rise to unique money laundering risks.
The Treasury also raised concerns about the increased use of stablecoins, a shift from the 2022 National Terrorist Financing Risk Assessment (NTFRA), where terrorist groups primarily solicited donations in Bitcoin.
Deputy Secretary of the Treasury Wally Adeyemo has previously expressed concerns about dollar-based stablecoins, particularly those not in the United States, highlighting the regulatory scrutiny surrounding these digital assets.
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