A new U.S. Treasury Department report analyzing decentralized finance has concluded that actors from the Democratic People’s Republic of Korea, as well as other scammers, are able to exploit vulnerabilities to facilitate money laundering.
In its “Illegal Financial Risk Assessment of Decentralized Finance” report released on April 6, the U.S. Treasury Department said that many groups engaged in illicit activities from North Korea benefited from some DeFi platforms not complying with certain anti-money laundering (AML) and Anti-money laundering regulations The Financing of Terrorism (CFT) Regulations. According to the report, insufficient AML/CFT controls and other deficiencies in DeFi services “resulted in the theft of funds.”
“Illegal actors, including criminals, scammers, and North Korean cyber actors, are using DeFi services to launder illicit funds,” said Treasury Under Secretary for Terrorism and Financial Intelligence Brian Nelson. “These risks need to be addressed to reap the potential benefits associated with DeFi services.” The report noted that some projects "certainly cite the lack of AML/CFT controls as one of the main goals of decentralization," noting that participants are often able to circumvent U.S. and U.N. sanctions. However, the Treasury reiterated that “the majority of money laundering, terrorism financing, and proliferation financing” occurs using fiat currencies, or outside of the digital asset ecosystem.
Officials suggested strengthening AML/CFT regulation of platforms offering DeFi services, guiding DeFi platforms on AML/CFT, and addressing any regulatory loopholes.
“Current DeFi services typically do not implement AML/CFT controls or other processes to identify customers, allowing for instant and pseudonymous yield tiering using long strings of alphanumeric characters rather than names or other personally identifiable information.” The assessment was made pursuant to an executive order on digital assets signed by President Joe Biden in March 2022. Since the implementation of the executive order, a number of U.S. government agencies have begun investigating the potential financial impact of various aspects of the digital asset space on the country. systems and existing payment infrastructure. In September 2022, the Ministry of Finance released a report that included cracking down on the risk of illicit financing of crypto assets.
