February 02, 2024

ICYMI: At Hearing, Experts Agree with Warren that Stablecoins and Crypto Pose Threats to American Consumers

Warren’s Bipartisan Digital Asset Anti-Money Laundering Act Will Crack Down on Criminals and Foreign Countries Defrauding American Consumers Out of Billions using Crypto

Hearing Exchange (YouTube)

Washington, D.C.  – At a hearing of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, Senator Elizabeth Warren (D-Mass.) called out criminals and foreign countries like North Korea for using crypto to defraud and scam Americans out of billions of dollars each year. Senator Warren called for action on her bipartisan Digital Asset Anti-Money Laundering Act, which would help close loopholes in anti-money laundering rules and make it easier for financial regulators to track suspicious crypto activity and shut down scammers.. 

In questioning, consumer protection and cybersecurity experts testified that the lack of safeguards around crypto, and specifically stablecoins, makes it a prime tool for criminals and foreign countries to scam Americans with. John Breyault, Vice President of Public Policy, Telecommunications and Fraud at the National Consumers League testified that the National Consumer League endorsed Senator Warren’s bill because it will help protect American consumers from crypto fraud. 

Transcript: Examining Scams and Fraud in the Banking System and Their Impact on Consumers
U.S. Senate Committee on Banking, Housing, and Urban Affairs 
Thursday, February 1, 2024

Senator Elizabeth Warren: So, cyber criminals are exploiting cryptocurrency to scam American consumers out of billions of dollars every year. According to the FBI, Americans are reporting losing more money to crypto-related investment fraud than any other kind of investment scam. 

In 2022, that amounted to reported losses of more than two and a half billion dollars, and that was up 183% in just one year. Now, according to the Federal Trade Commission, since 2021, crypto has accounted for about one in every four dollars that consumers report losing to fraudulent schemes. More than any other payment method out there. 

So let's focus today on one type of cryptocurrency, stablecoins. Stablecoins, like Tether and USDC, supposedly pegged to the dollar or other assets that are relatively stable, and this is supposed to make stablecoins safer and less volatile than other tokens, kind of the responsible big brother of crypto. 

But new data show that stablecoins are now used in the majority of illicit crypto transactions, especially in the scams. Last year, more than 70% of the crypto scams that we know about involved stablecoins. So, Ms. Sanchez-Adams, as a consumer protection expert, does it surprise you that stablecoins are increasingly being used to scam customers?

Carla Sanchez-Adams, Senior Attorney, National Consumer Law Center: No, as you said stablecoins are not as stable as they claim. And they really are primarily a gateway to support unsafe and dangerous crypto assets. So it's to get them into the door to do the crypto. 

Senator Warren: All right, so crypto scams, as you know, take a variety of different kinds of forms. “Pig butchering”, a kind of romance scam, where criminals build up a personal relationship with their targets online, and then convince them to invest money in fake crypto platforms before stealing the money. 

Many of these scams are perpetrated by sophisticated criminal organizations based in Asia, including North Korea. Mr. Benda, you are an expert on cybersecurity. What is it about crypto that makes it such a good tool to scam people out of their money?

Paul Benda, EVP, Risk, Fraud & Cybersecurity, American Bankers Association: So the challenge we have is that these cryptocurrencies operate outside the banking system, operate outside of regulation, operate outside of BSA/AML. Additionally, the technology is there that allows you to mix in high transaction, so you can go into that crypto ecosystem and you can actually obfuscate where that money goes after that. And additionally, you can put things together, what are called cold wallets. So you could download millions, hundreds of millions of dollars onto a single USB and transfer that internationally without anyone knowing anymore. 

Senator Warren: Wow, it’s a lot to be able to hide. You know, we can't keep making it easy for criminals and for countries like North Korea to defraud Americans out of their hard-earned money. 

20 senators, both Democrats and Republicans are sponsoring the Digital Asset Anti-Money Laundering Act. This bill would plug the holes in our anti-money laundering rules to make it easier for financial regulators to track suspicious crypto activity to make it more visible, and to shut down the scammers.

So Mr. Breyault, your organization, the National Consumers League, has been protecting consumers for over 100 years. Would this bill help protect American consumers from crypto fraud? 

John Breyault, Vice President Of Public Policy, Telecommunications, And Fraud, National Consumers League: Absolutely yes, Senator. 

Senator Warren: Want to say a word more? 

Mr. Breyault: So cryptocurrency is certainly the next frontier when it comes to payment scams. It offers a scammer’s dream: anonymity, immediacy, and irrevocability. 

So compared and so there and because of the availability now of cryptocurrency kiosks in convenience stores, grocery stores, smoke shops, I mentioned earlier, by one estimate there are more than 34,000 of these kiosks across the country. The ability to send cryptocurrency to scammers is usually just down the block for the vast majority of Americans. So yes, your bill would do much to protect consumers.

Senator Warren: Well thank you, Mr. Breyault. And thank you to the National Consumers League. We are very grateful to have your endorsement, from your organization. I also want to say thank you to the National Consumer Law Center, Ms. Sanchez-Adams. 

Our bill will help protect consumers and protect our national security and I look forward to working with my colleagues on this committee so that we can get it passed. Thank you