U.S. Secret Service to Congress: Address Criminal Use of Cryptocurrency Now
The move to ramp up the regulation of cryptocurrencies has taken another significant step forward. In a formal address to Congress, the U.S. Secret Service issued a stern warning regarding the illicit use of digital currencies that could have severe implications for possible future legislation.
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Main Concerns: Fraud and Money Laundering
Robert Novy, Deputy Assistant Director of the United States Secret Service’s Office of Investigations, sat down on June 20th to deliver a prepared testimony to Congress. He addressed the House of Representatives Committee on Financial Services, specifically the Subcommittee on Terrorism and Illicit Finance. The main concerns addressed — outlined early on in the report — were fraud and money laundering:
“The Secret Service’s primary concern regarding this topic is digital currencies’ use in criminal schemes that undermine the integrity of financial and payment systems, their use in cases of fraud, and their general use as a means of money laundering.”
Novy went on to say that while the Secret Service had had some success dealing with criminal activity tied to cryptocurrency, due to its volume, congressional action was warranted.
Since the early 1980’s, the U.S. Secret Service has had a license to investigate fraud involving electronic fund transfers, which evolved into dealing with various hacking crimes involving fraud as well as the general safeguarding of payments and financial systems. Digital currency has now become caught up the fray:
“In recent years, criminals have increasingly used digital currencies to facilitate illicit activities on the Internet. Digital currencies provide an efficient means of transferring large values globally, for both legitimate and criminal purposes. Some providers, exchangers and users of digital currencies attempt to avoid the international legal and regulatory systems established to counter illicit finance.”
Are Anonymous Coins Being Targeted?
Forbes first reported on this story, stating “cryptocurrencies like Monero and Zcash” were singled out. It is important to note neither of these coins were specifically mentioned in this report. However, the testimony does heavily imply coins of this type are a concern:
“We should also consider additional legislative or regulatory actions to address potential challenges related to anonymity-enhanced cryptocurrencies, services intended to obscure transactions on blockchains (i.e. cryptocurrency tumblers or mixers) and cryptocurrency mining pools.”
This may receive substantial backlash from some users and developers of these coins, as privacy is often considered a mere benefit of a coin being fungible. Because an anonymous currency cannot be tracked, all units are of equal value, since some coins will not have an undesirable history attached to them.
This enables a more legitimate comparison to traditional fiat currency, which holds the same characteristics, and is something bitcoin lacks and has received criticism for.
Nevertheless, Dovy alleges criminals prefer cryptocurrencies with the following characteristics:
1) Widespread adoption as a medium of exchange for intended criminal activities;
2) The greatest degree of anonymity;
3) Protection against theft, fraud, and lawful seizure;
4) Can be readily exchanged to and from their preferred currency;
5) The ability to quickly and confidently transfer value transnationally.
Earlier this year, a report leaked that the U.S. Army was looking into tracking Monero transactions. This testimony may suggest efforts to do so have not been successful. Dovy concluded the report by emphasizing that the Secret Service and law enforcement in general “are relentless in enforcing the law and will not be stopped by the perceived anonymity of the Internet or digital currencies.”
All Illegal Activities a Concern, Global Cooperation Emphasized
Various criminal uses of digital currency are outlined in the testimony, particularly the use of ransomware, which is used to take over a user’s computer and demand payment in the form of cryptocurrency, usually bitcoin.
The ease of international fraud enabled by cryptocurrency is also mentioned. Dovy argued that working with other nations to combat fraud and criminal activity must be fostered, and that effectively dealing with criminal activity in this realm “requires continual investment in international law enforcement collaboration.”
The report also mentions business providers that “are taking actions that impede timely access to digital evidence,” and encourages Congress to look into this issue. No specific companies or incidents are mentioned, though Apple’s reluctance to help the FBI crack an iPhone linked to the San Bernandino shooting in 2016 may be one example of this.
The testimony points out that centralized exchanges have been a “particularly effective control point for law enforcement”. The shutdowns of BTC-e and Liberty Reserve in part contributed to the rise of decentralized exchanges. This revelation and the subsequent use of existing exchanges to monitor the usage of cryptocurrencies could spur the further development of decentralized exchanges.
The news comes hot on the heels of the U.S. Department of Justice announcing an investigation into bitcoin price manipulation, as U.S. federal law enforcement shows no signs of slowing down in their efforts to reign in the illicit use of cryptocurrency.
Have your say. Has the DOJ and the Secret Service completely forgotten that fiat currency enjoys a long history with crime?
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