U.S. Regulator: DeFi services utilised for unauthorised transfers
According to the U.S. Treasury Department DeFi services are being used to transfer and launder illicit gains.
Highlights
- DeFi services are being used to illicitly transfer and launder money
- Cybercriminals are exploiting DeFi platforms to steal data
- DeFi services lack AML/CFT duties and inadequate cybersecurity procedures
The U.S. Treasury Department warned on April 6, 2023, that North Korea, cybercriminals, ransomware attackers, robbers, and con artists are exploiting decentralised finance (DeFi) platforms to transfer and launder their illicit proceeds.
DeFi platforms enable users to lend, borrow, and save without utilising banks, typically in the form of cryptocurrencies and stablecoins. The fundamental element of DeFi is that there is no centralised authority that can impose rules or regulate behaviour.
Illicit actors are exploiting vulnerabilities
In a recent illicit finance risk assessment on decentralised finance, the Treasury discovered that criminal organisations are taking advantage of gaps in international and domestic Anti-Money Laundering / Countering the Financing of Terrorism (AML/CFT) legislation, enforcement, and the technology supporting the services.
According to the study, DeFi services that disobey these obligations to stop money laundering and terrorism funding provide the worst danger of illicit finance in this area.
According to Brian Nelson, the Treasury's Under Secretary for Terrorism and Financial Intelligence, "Our evaluation reveals that illicit actors, including criminals, con artists, and North Korean cyber actors, are using DeFi services in the process of laundering illicit assets."
Nelson stated that the private sector should take action to stop criminal actors from utilising decentralised finance services by using the assessment's conclusions to guide their risk mitigation techniques.
Additional problems in the assessment included the possibility that DeFi services could be free from current AML/CFT duties, lack of application of international AML/CFT standards, and inadequate cybersecurity procedures.
The assessment suggested enhancing U.S. AML/CFT regulation, after taking into consideration further advice for the private sector on DeFi duties, and addressing any regulatory loopholes related to the services.
