- The research report states that the recent happenings in the crypto market enhanced the need for more strict crypto regulation.
- The two authors have prepared the research paper that highlighted the need for crypto regulation.
The Foundation for Defense of Democracies (FDD) last week released a research paper titled “The Underside of the Coin: Illicit Finance Risks in Virtual Assets.” The research paper is prepared by authors Richard Goldberg and Alex Levitov.
What’s inside the memo?
It states that after the recent turmoil in the crypto market, Washington seems like it finally wakes up to the need for more effective-regulation of cryptocurrency. Even after the recent crypto winter and many hyped crypto frauds in the industry, most of the institutions are still interested in the crypto market. And the potential of crypto usage is also increasing steadily. This is revealing a glaring gap in regulation.
The United States along with like-minded countries, have built regulatory frameworks to protect the traditional banking system from illicit finance. Still ‘Washington needs to update these frameworks for the “Web3” era, in which decentralized tools like cryptocurrency are increasingly prominent.”
The research paper also noted that the indictment of Sam Bankman-Fried, the founder of now-bankrupt crypto exchange FTX on charges of securities and commodities fraud emphasizes the need to protect consumers while regulating cryptocurrency investments and trading.
As Washington takes up the challenge of crypto regulation, as the research paper noted, national security should also be front and center. Additionally the regulatory frameworks for the traditional banking system include strong anti-money laundering and combating the finance of terrorism (AML/CFT) measures.
The paper added about the urgency to adapt AML/CFT frameworks to address cryptocurrency use in cybercrime, terror finance, drug trafficking, human trafficking, sanctions busting, and domestic extremism.
On the other hand, the relative pseudonymity of certain blockchain-based transactions made cryptocurrency naturally attractive to those who seek to avoid government supervision and intervention. It includes criminals, terrorists, and the states that sponsor them.
Meanwhile the poor cybersecurity has left crypto exchanges and related entities open to attack, including hacks resulting in the cumulative theft of billions of dollars, much of it by state-sponsored hacking groups. The research paper mentioned that “many companies in the crypto sector either do not have — or do not want to have — effective compliance and prevention programs to mitigate these risks.”
The lack of a coordinated regulatory or legislative response from the United State government is a gap that “America’s adversaries can exploit.” To be sure, both “the government and crypto industry need to balance protections of national security, privacy, and free speech in the regulation of digital assets. But the complexity of this task should not be a pretext for delay.”
Last year in March, President Joe Biden issued an executive order calling for a national security strategy for digital assets. Then in August, “the Treasury Department unveiled an action plan to address the illicit financing risks of digital assets.”
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