According to a new Treasury Department report, all sorts of unwanted users — ransomware gangs, thieves, scammers, and North Korea — are happily trading decentralized finance and even laundering funds. This is because DeFi does not comply with anti-money laundering and anti-terrorist financing laws.
Poor anti-money laundering compliance as well as poor cybersecurity put DeFi users at risk of theft and fraud, according to the Treasury.
In the US, the Bank Secrecy Act – and some other regulations – require financial institutions to help the government detect money laundering. In this paper, the Treasury notes that a DeFi service could well be a financial institution under the BSA, even if it is decentralized, and must comply with the law. Oh oh! That sounds like a warning shot. If I were working in DeFi, I would be concerned that a crackdown was imminent; The Treasury Department is essentially saying that DeFi services are vulnerable under existing laws.
The report notes that “many” DeFi services are non-compliant with the BSA, which is not exactly a surprise given that Bitcoin’s entire history has been a currency-based way to hate the government. In some cases, the paper says, DeFi services are intentionally decentralizing what they are doing to try to avoid money laundering enforcement. Unfortunately, says the Treasury Department, the law doesn’t work that way at all.
There’s a second warning shot in the paper: it recommends “increasing cooperation with foreign partners to push for greater enforcement” of anti-money laundering laws, which sounds a lot like the US really cares about others Support countries where DeFi could be set up.