US Treasury warns of DeFi misuse by illicit actors, calls for increased supervision

US Treasury warns of DeFi misuse by illicit actors, calls for increased supervision

On 6 April, the United States Treasury Department unveiled a report related to the risk assessment of decentralized finances (DeFi). The DeFi Illicit Finance Risk Assessment report was the first assessment conducted by any authority in the world. It provides details about lawbreakers who are using DeFi to conduct illegal transactions. Decentralized Finance (DeFi) is a term that is being used to refer to the financial services industry that is more frequently provided using decentralized platforms.

According to the report released by the United States Treasury Department, many DeFi services which come under Banking Secrecy Act (BSA) are failing to follow the anti-money laundering (AML) and counter the finance of terrorism (CFT) guidelines. The report while informing about the possible loopholes said that “Illicit actors, including ransomware cybercriminals, thieves, scammers, and Democratic People‚Äôs Republic of Korea (DPRK), are using DeFi services in the process of transferring and laundering their illicit proceeds”. 

Several countries worldwide are worried about the misuse of DeFi and now the US Treasury’s report will further force countries to launch scrutiny into existing guidelines. In the report, the Treasury suggests an increase in anti-money laundering and CFT guidelines to improve the supervision of Decentralized Finances. The Banking Secrecy Act (BSA) of 2007 provides guidelines to banks and other financial institutions to help the government in curbing money laundering and other illegal activities. It is mandatory to maintain records of cash and other negotiable instruments. 

The United States Treasury Department is worried about North Korean cyber criminals who are using illegal practices to process funds. According to the report, these cyber criminals may try to exploit the loopholes in the system to conduct money laundering. 

By making cautions regarding the misuse of DeFi, the United States also recommended steps to tackle these issues. It recommended strengthening U.S. AML/CFT regulatory supervision. The Private sector can use the finding of reports and enhance its guidelines to prevent itself from any unforeseen potential fraud. 

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