FinCEN acting director says PATRIOT Act provision isn’t ‘right sized’ for crypto enforcement

Him Das, acting director of the United States Financial Crimes Enforcement Network, or FinCEN, said that some of the government office’s tools for combating money laundering and terrorist financing may not be suitable for cryptocurrencies. .

At a Thursday House Financial Services Committee hearing on “Financial Crimes Enforcement Network Oversight,” Das addressed lawmakers’ concerns regarding FinCEN’s authority to seek information on illicit digital asset transactions. Kentucky Rep. Andy Barr said many of the current “special measures” FinCEN was authorized to use under Section 311 of the PATRIOT Act were “rarely used,” while Das hinted that digital assets were essentially new ground for law dealing with Anti-Money Laundering, or AML, and Countering the Financing of Terrorism, or CFT.

“Section 311 was enacted at a time when most financial relationships and transactions were conducted through the traditional banking system where traditional correspondent account relationships exist,” Das said. “Cross-border transactions today often include money service businesses, payment systems, […] exchange houses, as well as cryptocurrencies.

Das added that FinCEN’s current authority under the PATRIOT Act would likely not prevent actors from engaging in illicit transactions for ransomware attacks and darknet markets:

“Currently, Section 311 authority is not sized appropriately for the types of threats we are seeing through the use of cryptocurrencies.”
Acting FinCEN Director Him Das addresses the House Financial Services Committee on April 28.

In addition to questions about FinCEN’s authority to assess suspicious transactions, many lawmakers questioned how the office could handle Russian oligarchs and entities that use cryptocurrencies to evade sanctions. Das reiterated FinCEN’s position from March that the Russian government was unlikely to use convertible virtual currencies to evade sanctions on a large scale, but would continue to monitor the situation:

“We have not seen large-scale evasion using cryptocurrency, but we are aware of that and are working with financial institutions to make them aware of that potential that we can identify large-scale evasion using cryptocurrency and act on it as well.”

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According to Das, FinCEN will also consider how to handle financial monitoring requirements for crypto companies that facilitate certain transactions to self-custodial or non-hosted wallets. The US Treasury Department proposed Know Your Customer rules on non-hosted wallets for transactions over $3,000 in December 2020 and hinted in its semi-annual agenda and regulatory plan released in January that it would seek to regulate this aspect of the space. cryptographic.

“It’s not that unhosted wallets are completely opaque,” Das said. “Unhosted wallets often engage in transactions with cryptocurrency exchanges, which are subject to AML/CFT regulation. […] Law enforcement may engage with cryptocurrency exchanges regarding suspicious activity reports and other reports that might apply to them in terms of gaining some degree of understanding in terms of transactions with non-hosted wallets as well.”