To battle against illicit finance, US tightens crypto regs and boosts AI to enforce better regulations.
The National Strategy for Combating Terrorist and Other Illicit Financing, released every two years, was produced by the US Treasury Department. It includes four top proposals that could have different effects on virtual assets.
The Treasury plan recognized the challenge law enforcement faces in keeping up with the rapid advancements in financial technology.
Addressing regulatory deficiencies in Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT), and developing a more efficient and targeted supervisory system are the top two Treasury objectives. “Assess the need for additional action on sectors not subject to comprehensive AML/CFT measures,” the Treasury declared.
Stricter enforcement is also planned. The plan stated:
“The explosion of new payment channels and financial service providers, including VASPs [virtual asset service providers], over the last decade, have stretched thin the limited supervisory resources historically applied to more traditional MSBs [money service businesses].”
A new focus on blockchain technology is a component of the plan. One such organization is the Virtual Assets Unit of the Federal Bureau of Investigation, which offers its employees “technological equipment, blockchain analysis and virtual asset seizure training, and other sophisticated virtual asset training.”
Lastly, the Treasury employs various strategies to “support responsible technological innovation and harness technology to mitigate illicit finance risks.”
It suggests fighting against derisking, denying small banks all correspondent services in areas with high criminal activity, and promoting inclusion in the financial sector.
Derisking encourages the adoption of cryptocurrency-based payment and remittance systems independent of banks but has severe repercussions for lawful consumers of bank services.
Improved international payment networks and regulated money transfer choices are components of the plan. It cited the FedNow domestic transfer system and the G20 Roadmap as excellent examples of this strategy in action.
Digital identity and artificial intelligence may be crucial to the strategy’s success:
“We will provide regulatory and policy support for reliable digital identity solutions and […] expand the use of artificial intelligence (AI) and data analytics in U.S. government efforts to […] promote U.S. technological leadership on payments that reflect U.S. standards, practices, and values.”
AI has the potential to support government regulation and enforcement initiatives, but it may also be used by unauthorized financial system users, according to the approach.