Treasury Says Crooks Prefer Fiat Over Crypto in DeFi Risk Report
The US Treasury Department has warned about criminals using decentralized finance (DeFi) protocols, but admitted that money launderers and terrorists usually prefer fiat currencies to crypto.
In its report “Illicit Finance Risk Assessment of Decentralized Finance” released today, the US body says so that ransomware crooks, thieves, fraudsters and other criminals “use DeFi services in the process of transferring and laundering their illegal proceeds.”
It added that many DeFi apps do not comply with US Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) rules and were therefore exploited by bad guys.
Although the report noted that “money laundering, proliferation financing and terrorist financing most often occur using fiat currency or other traditional assets as opposed to virtual assets.”
DeFi refers to the industry within the cryptosphere that aims to make traditional finance more automated and accessible to everyone via decentralized applications.
The idea is that things like taking out a loan or earning interest on savings will be faster, more accessible and without an expensive intermediary. Such tools allow anyone to connect a self-hosted crypto wallet to a website, execute trades or other transactions, all without disclosing any personally identifiable information to the tool’s provider or developer.
But DeFi tools are still experimental, notoriously troublesome — especially when it comes to hacks– and criminals have used them to launder dirty money.
One DeFi app that made headlines last year was Tornado Cash “coin mixer.” In a controversial move last August, the Finance Ministry said sanctioned tool because North Korean hackers allegedly used it.
State-sponsored Lazarus Group used Tornado Cash – which allows people to send and receive Ethereum anonymously – to launder over $96 million after it hacked blockchain protocol Harmony Bridge, blockchain analysts so.
Politicians, crypto companies and industry lobbyists have complained about the sanctions – arguing that it takes away people’s right to financial privacy. Because blockchain networks are public and transparent, transactions that occur on them are easy to track. Tools that allow such transactions to enjoy the same privacy as cash exchanges should therefore exist, advocates argue.
The Treasury Department further added in its Thursday report that it was working to improve the AML/CFT framework in the crypto world and would “collaborate with the private sector to support responsible innovation in the DeFi space.”
