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In a recent hearing before the Senate Banking, Housing and Urban Affairs Committee, US Treasury Deputy Secretary Wally Adeyemo expressed concerns about the increasing use of cryptocurrencies and digital assets by terrorist groups and state actors like Russia and North Korea to hide their identities and move resources. Adeyemo highlighted examples of how these groups are utilizing virtual assets for illicit finance activities, such as North Korea using cyber heists and Russia using stablecoins like tether to evade sanctions. He urged Congress to provide regulatory tools to combat this illicit finance and prevent the adoption of virtual assets by malign actors, calling for legislation to target foreign digital asset providers and strengthen enforcement efforts.

Adeyemo emphasized the need to close regulatory gaps and extend authorities to cover entities like virtual asset wallet providers and cryptocurrency exchanges that have emerged since current laws were enacted. He also highlighted the jurisdictional risks posed by offshore cryptocurrency platforms and urged lawmakers to take action to safeguard US national security. Additionally, prominent cryptocurrency firms like Coinbase Global and Circle Internet Financial called upon Congress to enact regulations for stablecoins and improve the overall digital asset market structure to address the risks of regulatory arbitrage and lack of regulatory clarity.

The United Nations recently highlighted the role of Tether in illicit financing activities, particularly in Southeast Asia. The report pointed out a rapid growth in sophisticated, high-speed money laundering teams specializing in using Tether for underground transactions, with online gambling platforms being popular avenues for cryptocurrency-based money launderers. Tether refuted these claims, stating its collaboration with law enforcement agencies and emphasizing the traceability of its token. The company highlighted its monitoring capabilities, surpassing traditional banking systems and collaborating with agencies like the Department of Justice, the Federal Bureau of Investigation, and the United States Secret Service.

Adeyemo’s testimony before the Senate Banking Committee focused on the role of crypto in terror financing, urging Congress to consider all the facts in addressing the issue of illicit finance. He reiterated the concerns about terrorists and state actors using virtual assets to hide their identities and move resources, emphasizing the need for legislative action. Adeyemo called for stronger tools to target foreign digital asset providers facilitating illicit finance and impose secondary sanctions on them. He also highlighted the increasing use of virtual assets by these groups and warned that without regulatory action, their adoption would continue to grow.

In response to Adeyemo’s concerns, Coinbase Global and Circle Internet Financial called on Senate Majority Leader Chuck Schumer and House Speaker Mitch McConnell to enact regulations for stablecoins and enhance the digital asset market structure. They emphasized the risks of regulatory arbitrage due to the lack of regulatory clarity and urged the extension of anti-money laundering and sanctions regulations to cover foreign stablecoin issuers referencing the US dollar. Adeyemo confirmed that the Treasury had previously recommended reforms to the committee and expressed the department’s willingness to work alongside lawmakers to address these issues. The collaboration between government agencies, cryptocurrency firms, and regulators is crucial in combating illicit finance and ensuring the security of the US financial system.

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