Cryptocurrencies could undergo renewed regulatory scrutiny over the next four years if Janet Yellen, Joe Biden’s choice to lead the Treasury Department, gets what he wants. During Yellen’s confirmation hearing on Tuesday before the Senate Finance Committee, Senator Maggie Hassan (DN.H.) asked Yellen about the use of cryptocurrency by terrorists and other criminals.
“Cryptocurrencies are a particular concern,” replied Yellen. “I think that many are used – at least in the sense of transactions – primarily for illicit financing.”
She said she wanted to “look at ways to restrict its use and ensure that [money laundering] it does not occur through these channels. “
Blockchain-based financial networks are attractive to criminals because they do not require users to identify themselves – as the law requires that most conventional financial networks do. Since no individual or organization controls these networks, there is no easy way for governments to force them to comply with money laundering laws.
So, instead of trying to force the networks themselves to comply, regulators in the United States – and in many other jurisdictions – have focused on regulating bitcoin exchanges that help users trade between dollars and cryptocurrencies. Once a bitcoin exchange identifies who initially received a particular bitcoin payment, law enforcement can often track subsequent payments through an open payment book from the blockchain network.
FinCEN
In December, Trump’s exit team on the Financial Crimes Enforcement Network – a Treasury Department unit focused on money laundering – proposed a new set of rules to tighten the screws on cryptocurrency-based money laundering.
Under the new rules, cryptocurrency-based exchanges would need to file transaction reports with FinCEN whenever a customer made a cryptocurrency transaction worth more than $ 10,000. This would reflect existing rules that require conventional banks to report when customers make cash withdrawals or deposits in excess of $ 10,000.
Even more controversial in the cryptocurrency world, FinCEN wants to impose new record-keeping requirements for transactions involving users who manage their own private keys – dubbed “non-hosted wallets” by FinCEN. According to FinCEN’s proposal, if the customer of a cryptocurrency exchange sends more than $ 3,000 to an unhosted wallet, the exchange must maintain a record of the transaction, including the identity of the customer who initiated the payment.
These new rules did not take effect until Trump stepped down, so Biden’s new team will need to decide what to do with them. The Biden government could approve the existing rules, rewrite them or discard them altogether. Yellen’s comments on Tuesday suggest that she is unlikely to break the rules. If anything, the Treasury Department will likely consider additional regulations on the blockchain economy over the next four years.