Excerpts From Deputy Secretary of the Treasury Wally Adeyemo’s Remarks at the 2023 Blockchain Association’s Policy Summit

Excerpts From Deputy Secretary of the Treasury Wally Adeyemo’s Remarks at the 2023 Blockchain Association’s Policy Summit

WASHINGTON – On Wednesday, November 29, Deputy Secretary of the Treasury Wally Adeyemo will deliver remarks followed by a fireside chat at the 2023 Blockchain Association’s Policy Summit. Deputy Secretary Adeyemo’s remarks build on Treasury’s work to promote responsible innovation while countering the illicit use of digital assets, including in last week’s historic settlement with Binance. The following are excerpts from the Deputy Secretary’s remarks as prepared for delivery.

“According to the Office of Financial Research, in 2021 alone, companies reported more than 2 billion transactions totaling $1.4 trillion in virtual currency transactions.  That’s about four times as many transactions and seven times the volume of the previous year. That’s why more than a year ago, at the Consensus conference in Austin, Texas, I spoke about the tremendous opportunity digital assets present to promote innovation that helps us reimagine commerce.

But I also made clear the importance of industry proactively taking steps to prevent digital assets from being used by transnational criminal organizations, terrorists, and rogue states. I hoped the digital asset industry would take up this call to partner with government, design new tools, and pursue new ways to protect digital assets from being abused.

While some have heeded our calls and taken steps to prevent illicit activity, the lack of action by too many firms—both large and small—represents a clear and present risk to our national security.

Today I would like to focus on the steps we must now take in order to prevent bad actors from using the digital asset ecosystem for illicit activity. I want to directly address those within the digital asset industry who believe they are above the law, those that willfully turn a blind eye to the law, and those that promote assets and services that aid criminals, terrorists, and rogue states.

My message is simple: We will find you and hold you accountable.

This is exactly what happened to Binance, the largest virtual currency exchange in the world. Over several years, Binance allowed itself to be used by the perpetrators of child sexual abuse, illegal narcotics trafficking, and terrorism, across more than 100,000 transactions. Groups like Hamas, Al Qaeda, and ISIS conducted these transactions.”

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“But our challenge extends beyond exchanges to other parts of the digital asset ecosystem. Earlier today, we sanctioned Sinbad.io (Sinbad), a virtual currency mixer that serves as a key money-laundering tool for a cyber hacking group sponsored by North Korea. Sinbad processed millions of dollars’ worth of virtual currency from cyber hacks and enabled cybercriminals to mask illicit transactions.”

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“Today, government and the traditional financial sector work in partnership to prevent the movement of illicit proceeds. We have built a regulatory framework that traditional financial firms not only adhere to, but help us to implement. These firms have invested in tools, personnel, and processes that help us identify and capture criminals, terrorists, and others that seek to move money illegally.

Just this week, the CEO of the American Bankers Association highlighted ongoing work to design, develop, and pilot a new information sharing exchange, which the ABA will manage, that focuses on combatting fraud, money laundering, and terrorist financing. This type of collaboration and proactive effort amongst industry participants both large and small is commendable and demonstrates the collective commitment that is necessary to stay ahead of bad actors.

We need those in the digital asset industry to do the same. You have the capacity to build new tools that help prevent money laundering while continuing to provide legitimate protections to individuals. You also have the capacity to cut off firms from your ecosystem that are failing to take steps to prevent illicit finance.”

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“Yesterday, Treasury provided Congress a set of common-sense recommendations to expand our authorities and broaden our tools and resources to go after illicit actors in the digital asset space.

First, we are pursuing the creation of new sanctions tools targeted towards actors in the digital asset ecosystem that allow terrorist groups and other illicit actors to move their assets. We are calling on Congress to create a secondary sanction regime that will not only cut off a firm from the U.S. financial system, but will also expose any firm that continues to do business with the sanctioned entity to being cut off from the US financial system. This is a significant tool we do not request lightly. But we need to do everything in our power to make sure that groups like Hamas are not able to find safe haven within the digital asset ecosystem.

Second, we need to update our illicit finance authorities to match the challenges we face today, including those presented by the evolving digital asset ecosystem. For example, we cannot rely on statutory definitions that are decades-old to address the illicit finance risks we face in 2023.  We cannot allow dollar-backed stable coin providers outside the United States to have the privilege of using our currency without the responsibility of putting in place procedures to prevent terrorists from abusing their platform. And we cannot permit offshore financial services providers to use jurisdiction-evasion tactics to avoid complying with our laws.  We are working to close these gaps and others.

Finally, in addition to working with Congress, we are committed to working with the Financial Action Task Force (FATF) to make sure our allies and partners around the world join us in updating their regulatory approach.

The last time we pursed major reforms to this architecture was after the terrorist attacks on 9/11. The threat actors and tools at their disposal have changed, but their goals remain the same. As terrorist and criminals innovate their approach to illicit finance, we need tools to be able to keep up with them.

These reforms will not only help us curb illicit finances, but they will also level the playing field for the actors pursuing responsible and beneficial innovation and facilitate sustainable growth for the industry.”

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