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US Treasury warns crypto industry to identify questionable wallets

TL;DR Breakdown
  • Enforcement at the Financial Crimes Enforcement Network (FinCEN) Associate Director Alessio Evangelista urges crypto service providers to help them identify problematic wallets.
  • Evangelista notes that many crypto firms are ignoring red flags on suspicious wallets that could tarnish their reputation.

In a speech to an audience of compliance wonks at the Chainalysis LINKS on Thursday, US Treasury has warned the crypto industry of the growing concerns over crypto. He urged crypto service providers to proactively identify wallets that belong to sanctioned entities or are tied to illicit schemes such as ransomware and money laundering activities.

Growing concerns over crypto crime, a multibillion-dollar backwater that in some cases now threatens national security, have underpinned the announcement.

Money laundering is a serious crime.

said FinCen Director Kenneth Blanco. He added that they want to protect the US financial system from criminals and terrorists who are involved in illicit transactions.

The US Treasury believes that blockchain technology can be used for money laundering and warns the crypto industry to “sit up and take notice” of what the agency is doing.

US treasury will blacklist certain wallets

Hackers have used a series of crypto mixers to launder stolen funds from major hacks. US Treasury Official urges the crypto industry to take responsibility for their role in money laundering and terrorism financing.

The agency will be blacklisting certain wallets that are known to be problematic, which means that any funds stored in those wallets will become almost impossible to access.

The move comes as part of growing concern over the risk of crypto crime and hacking, particularly in light of the recent spate of cryptojacking attacks. It’s a move meant to deter crypto hackers and criminals who have used these wallets for their activities.

The United States Treasury has recently hit cryptocurrency mixing service with sanctions. This prevented transactions with US persons, providing services for the attackers that made off with $600 million from the Ronin sidechain earlier this year.

The Treasury Department is also considering making more direct warnings about which wallets are associated with criminal activity. Additionally, they will implement a policy that would require crypto exchanges to block transactions from wallets on their blacklists.

Still, the Treasury has not released a complete list of the blacklisted wallets but announced that it would be releasing them over the coming weeks.

Crypto crime on the rise

There is a growing concern over crypto crime, which in some cases now threatens national security. This month, the US Treasury, for the first time, sanctioned a crypto mixer – an on-chain privacy tool that cryptocurrency holders use to hide their tracks – over processing assets stolen by North Korean hackers in an Axie Infinity heist.

The Treasury Department is concerned that users who are not properly protecting their private keys may become targets for hackers, who could then use those keys to steal funds from their accounts. The Treasury Department will begin by monitoring transactions on its own network but says it will expand to include other networks in the future.

Meanwhile, crypto tracking service Etherescan shows that about $230 million of the stolen funds have been moved to several wallet addresses. Almost $160 million has been sent to the Tornado cash mixer to hide the trails of the fund.

The coin mixing service enables anonymous crypto transactions between two parties by generating a secret hash each time a user deposits assets. It keeps the identity of the user and the buyer completely anonymous.

For the first time, Treasury is sanctioning a virtual currency mixer.

Under Secretary of the Treasury for terrorism and financial intelligence Brian Nelson said:

Virtual currency mixers that assist illicit transactions threaten US national security interests. We are taking action against illicit financial activity by the DPRK and will not allow state-sponsored thievery and its money-laundering enablers to go unanswered.

Cryptocurrencies are part of a larger ecosystem of applications and projects that use blockchain technology. This ecosystem records transactions across a global network of computers. 

That larger ecosystem is still multiplying, and the proper regulations could encourage investors to feel more comfortable pouring money into blockchain companies.

Nellius Irene

Nellius Irene

Nellius Irene is a cryptocurrency investor and journalist who has been in the nascent space since 2018. She has researched and written on several crypto-related topics including non-fungible tokens (NFTs), decentralized finance (DeFi), fundraising, mining, etc. Her major focus is covering regulatory events that are capable of shaping the entire crypto ecosystem.

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