On January 10, 2022, the U.S. Government Accountability Office (“GAO”) released a report to the public summarizing its findings on the use of virtual currencies to facilitate human and drug trafficking. These findings were based on a review of federal agency records and interviews with federal officials from a number of agencies.
In addition to using virtual currencies to facilitate transactions (i.e., accepting virtual currencies in exchange for illegal goods and services), the GAO found that human and drug traffickers were using virtual currency kiosks to effectively launder their ill-gotten gains by converting cash proceeds into a variety of virtual currencies. While the Financial Crimes Enforcement Network (FinCEN) requires the operators of such kiosks to register their operations, it does not currently require the reporting of specific kiosk locations, which the GAO focused on as a potential step that could be taken to deter such activity.
The GAO also highlighted the fact that the increasingly global reach of virtual currencies has created new pathways for criminals and criminal organizations to move their finances beyond the immediate reach of U.S. authorities. This reality, according to the GAO, demonstrates the need for increased attention to documenting activity in virtual currencies by federal law enforcement agencies in order to facilitate increase cooperation both between agencies and their international counterparts.
The GAO made two notable recommendations: (1) that FinCEN and IRS review virtual currency kiosk requirements to enable law enforcement agencies to track suspect transactions at such kiosks more easily and potentially deter illegal trafficking; and (2) that the federal government more broadly collect and publish data on the use of virtual currencies and kiosks and kiosk operators.
Just as we have seen an increased focus from state and federal financial regulators on virtual currencies, we expect to see more attention from law enforcement agencies at every level on the use of this emerging field throughout 2022.
The GAO’s full report is available here.
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Blockchain technology utilizes a distributed digital ledger to record and track information, and can be leveraged to gain transparency and certainty in transactions ranging from cryptocurrency to supply chain tracking. This blog provides information on the legal developments surrounding implementation of blockchain technology, with an initial focus on the financial services sector.