CFTC Commissioner: Crypto Companies Must ‘Distance’ Themselves From Anonymity Tech

Christy Goldsmith Romero, commissioner of the Commodity Futures Trading Commission, recently addressed a discussion on cryptocurrencies in London, focusing on cases of the criminal financial use of digital assets.

According to Romero, the devices “pose a national security and other risk.” Crypto’s darkest corners, drawn by promises of anonymity, promote the financing of terrorism, drug trafficking, darknet markets, cyber gangs, money launderers and state-sponsored destructive behavior.

“Cybercriminals are sending money over DeFi protocols not because DeFi is useful for hiding money flows.” In fact, unlike centralized services, all actions are recorded on-chain,” said Chainalysis in its 2022 crime report.

As a result, this crime has become a “big discussion point on crypto Twitter and in other industry forums, with many openly tracking funds and sharing addresses holding stolen funds.” This can make it more difficult for hackers to transfer stolen money to an off-ramp fiat, which may be one reason they leave funds in private wallets.”

This, combined with the methods used by investigative organizations ranging from the FBI to the Treasury to the IRS, has resulted in the monitoring, arrest, and punishment of perpetrators who have committed crypto crimes.

Since 2019, the Office of Overseas Assets Control of the Ministry of Finance has sanctioned individuals who have worked with or for the group. On April 24, OFAC announced three new sanctions against individuals associated with North Korea and the Lazarus group. However, according to a Department of the Treasury analysis on decentralized finance released earlier this month, criminals are still using fiat currency to carry out illicit activities.

Romero believes that anonymity is key to the criminal applications of cryptocurrencies.

“It is critical for governments and industry to address what makes cryptocurrencies so attractive to illicit finance—the allure of anonymity.” While public blockchains can provide traceability and transparency, using mixers and technologies designed to enhance anonymity poses significant risks,” he noted.

He highlighted a Chainaysis analysis that found $3.8 billion in cryptocurrency breaches by 2022. In comparison, according to the FBI’s Internet Crime Report for 2022, cybercrimes cost $10.3 billion last year. “Digital assets are already easier for law enforcement to track than traditional assets, such as a briefcase full of cash or a box full of debit cards pre-funding,” said Dave Weisberger, CEO of CoinRoutes, in an email to Blockworks. The FBI, in particular, is well aware of this. In short, there has to be a balance here that protects financial privacy through digital assets while trying to prevent criminal transactions.”

At the end of his speech, Romero called on the private sector and foreign governments to work together because digital assets can cross borders, and Romero stated that there may not be a safe path for criminal funds to protect the global financial system.

“While there are many sensible and effective ways for the digital asset industry to collaborate with regulators and lawmakers to help stop wrongdoing, we must never lose sight of our broader social goals.” This includes preserving people’s privacy as well as giving them the ability to choose, even when it comes to selecting digital assets for various activities,” Umee CEO Brent Xu told Blockworks.