At Hearing, Warren Raises Concerns that Criminals, Terrorists, Rogue States Use Crypto to Launder Billions
Warren and Marshall Will Reintroduce Bipartisan Digital Asset Anti-Money Laundering Act to Put Guardrails on Crypto
“We have money laundering rules that cover banks and credit unions and stockbrokers and gold dealers and even Western Union, but the current rules don’t cover big parts of the crypto industry. And crypto likes it that way… The rules should be simple: same kind of transaction, same kind of risk, means the same kind of rules.”
Washington, D.C. – At a hearing of the Senate Banking, Housing, and Urban Affairs Committee, U.S. Senator Elizabeth Warren (D-Mass.) raised concerns that key parts of the crypto industry are not subject to the same anti-money laundering laws that cover banks, credit unions, stockbrokers, and even Western Union – allowing financial criminals like drug traffickers, rogue states like North Korea and Iran, and ransomware attackers use crypto to launder billions in illicit funds.
Senator Warren announced that she will reintroduce her and Senator Roger Marshall’s (R-Kan.) bipartisan Digital Asset Anti-Money Laundering Act, legislation that would put up guardrails around crypto by closing loopholes in the existing anti-money laundering and countering of the financing of terrorism (AML/CFT) framework and bringing the whole of the digital asset ecosystem into compliance with the rules that govern the rest of the financial system.
Transcript: Crypto Crash: Why Financial System
Safeguards are Needed for Digital Assets
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Tuesday, February 14, 2023
Senator Elizabeth Warren: Thank you, Mr. Chairman. So, big time financial criminals love crypto. Just last year, just in one year, crypto was the payment method of choice for international drug traffickers who raked in over a billion dollars through crypto. North Korean hackers, who stole $1.7 billion and funneled that money into their nuclear program. And ransomware attackers who took in almost $500 million.
The crypto market took in $20 billion last year in illicit transactions. And that's only the part we know about. You know, that is a lot of fentanyl and heroin, a lot of help for Iran and Russia, and a lot of money leaking out to terrorists. And that is precisely what anti-money laundering rules are designed to stop. Now, Mr. Reiners, you've studied financial technologies, including crypto for many years now. And before that you worked as a regulator. Why do drug lords and human traffickers in countries like North Korea and Iran use crypto instead of banks and credit unions, or even Western Union?
Lee Reiners, Policy Director, Duke Financial Economics Center: Thank you, senator. So crypto’s pseudonymity makes it ideally suited for bad actors. And when you couple that with the fact that crypto transactions are not subject to the same AML and countering the financing of–
Senator Warren: AML, meaning anti-money laundering.
Mr. Reiners: AML, meaning anti-money laundering and countering the financing of terrorism statutes that traditional financial transactions are subject to, again, that just, you know, makes it ideally suited for people that want to do bad things.
Senator Warren: So in other words, crypto helps those drug traffickers and rogue states launder money nearly instantaneously. Is that right?
Mr. Reiners: That's correct.
Senator Warren: All right. And if they couldn't use crypto, would ransomware gangs even exist?
Mr. Reiners: No.
Senator Warren: And why is it that?
Mr. Reiners: Because ransomware is the exclusive payment method of choice for ransomware hackers.
Senator Warren: You mean crypto.
Mr. Reiners: Or I'm sorry, crypto is the exclusive payment method of choice for ransomware hackers.
Senator Warren: 100%. Wow, so we have money laundering rules that cover banks and credit unions and stockbrokers and gold dealers and even Western Union, but the current rules don't cover big parts of the crypto industry. And crypto likes it that way.
In fact, the crypto industry claims that applying anti-money laundering laws to the whole crypto industry is quote, “not only unnecessary, but it's all but impossible.” By the way, this is not a new claim. In 1970, Congress decided it was time for financial institutions to do their part to prevent money laundering, so it passed the Bank Secrecy Act or BSA. The banking industry objective, objected claiming that complying would be quote, “a tremendous expense as well as a pain in the neck.”
The banks resisted, they brought legal challenges, they complained that it would be impossible to comply. And then after the law went into effect, they made it work. Now the crypto industry explains that they are amazingly innovative and creative. But they just couldn't possibly figure out a way to comply with the same anti-money laundering rules that everybody else follows. So Mr. Reiners, do you buy the industry's argument that crypto is simply too special to follow anti-money laundering rules, and that it would be too hard for them to even try?
Mr. Reiners: I do not senator.
Senator Warren: All right. Some in the crypto industry say that anti-money laundering rules can work so long as they exempt so called decentralized entities, the crypto exchanges, lenders, and other financial intermediaries that run on code. In other words, they want a giant loophole for DeFi written into the law so they can launder money whenever a drug lord or a terrorist pays them to do so. Now, that is exactly what Colorado based-crypto exchange ShapeShift did when it deliberately restructured itself as a DeFi platform.
And here's what it told its customers. They said we're making this shift quote, “to remove itself from regulated activity.” Translation. launder your money here. Mr. Reiners, should Congress be in the business of creating loopholes for money laundering?
Mr. Reiners: They should not.
Senator Warren: Alright. Look, the rules should be simple: same kind of transaction, same kind of risk, means the same kind of rules. And that's why Senator Roger Marshall and I are reintroducing our anti-money laundering bill to clamp down on crypto crime and to give regulators the tools they need to stop the flow of crypto to drug traffickers in places like North Korea and Iran. Thank you Mr. Chairman.
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