December 15, 2022

ICYMI: At Hearing, Warren Warns About Crypto’s Use for Money Laundering by Rogue States, Terrorists, and Criminals

Warren’s Bipartisan Digital Asset Anti-Money Laundering Act Cracks Down on Crypto Money Laundering, Financing of Terrorists and Rogue Nations

"It is time Congress makes the crypto industry follow the same money laundering rules as everyone else. That’s why Senator Marshall and I introduced a bipartisan bill today that requires crypto to follow the same money laundering rules that every bank, every broker, and Western Union all have to follow today."

Hearing Exchange (YouTube)

Washington, D.C. – At a hearing of the Senate Banking, Housing, and Urban Affairs Committee, U.S. Senator Elizabeth Warren (D-Mass.) called out crypto’s use by terrorists, ransomware gangs, drug dealers, and rogue states to launder funds. Senator Warren's new bipartisan Digital Asset Anti-Money Laundering Act would crack on crypto money laundering by closing loopholes in the existing anti-money laundering and countering of the financing of terrorism (AML/CFT) framework, bringing the digital assets into greater compliance with the rules that govern the rest of the financial system. 

Reports show that digital assets are being increasingly used for money laundering and fraud, evading American and international sanctions, and funding illegal weapons programs. In 2021, at least $14 billion in digital assets were sent to criminals, a new high. Senator Warren noted that banks, stockbrokers, and even Western Union branches are required to comply with know-your-customer and other AML/CFT checks – but the crypto industry exploits loopholes in the AML/CFT framework, making digital assets attractive to criminals. 

Transcript: Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers
U.S. Senate Committee on Banking, Housing, and Urban Affairs 
Wednesday, December 14, 2022

Senator Elizabeth Warren: Thank you, Mr. Chairman.

So Sam Bankman-Fried and other crypto billionaires argue that crypto is special. But a basic principle of our financial system is, same kind of transaction, same kind of risks, means same rules apply.  

Right now, if a bank takes money from terrorists, and the bank and the banker then have broken the law. And that’s why banks spend so much time and so much energy identifying who their customers are and reporting suspicious activity to authorities. 

A lot of crypto firms are not doing these kinds of checks – so crypto has become the preferred tool for terrorists, for ransomware gangs, for drug dealers, and for rogue states that want to launder funds. 

In 2021, at least $14 billion dollars in digital assets went sent to criminals. Now, that’s a lot of drugs, and lot of ransoms, and a lot of bombs, and lot of nuclear materials. But it is likely only the tip of the iceberg. A new report finds that one crypto exchange alone helped launder over $10 billion for criminals and countries like Iran. Even so, the crypto industry continues to take the position nothing should change.  

Professor Allen, the crypto industry claims that it doesn’t need to do all the know-your-customer and other anti-money laundering checks that banks do and stockbrokers do, and even Western Union does, because crypto is uniquely transparent. Everything is on the blockchain, so criminals and rogue states that try to launder money in crypto will quickly be found out.  Does the fact that the blockchain is public mean that it is more difficult for criminals to launder money using crypto?

Professor Hilary J. Allen, American University Washington College of Law: In many ways, the blockchain is the worst of all worlds. For everyday people, the blockchain is a permanent public record of all their transactions, which is a privacy nightmare. But for sophisticated players with a vested interest in hiding their transactions, there are all kinds of tools available: mixers, tumblers, et cetera, that can hide the provenance of their crypto assets. And far from being difficult for criminals to use crypto to launder money, the fact that there aren't KYC checks is, is the point.

Senator Warren: Okay, so crypto is actually easier to do money laundering. Let's look at another crypto industry argument. Professor Allen, the crypto industry claims that it would be too much trouble and maybe even technologically impossible for them to check customers the way that banks and stockbrokers and even Western Union does. But let me ask, do banks and stockbrokers and Western Union have to invest money and resources to make sure that they're set up to conduct those checks?

Professor Allen: Yeah, I mean, KYC requirements are simply part of operating a financial services business. But avoiding those requirements, as you say, is critical to many crypto business models. Blockchain-based transaction processing, as we've discussed, is very clunky and expensive. Ms. Schulp has just told us that it could be more efficient. The only way it's more efficient is if it actually avoids the KYC checks that can slow things down. So the, this crypto business model is in many ways a regulatory arbitrage play.

Senator Warren: But right. And so actually, it's an interesting question, if banks and Western Union said they shouldn't have to follow anti-money laundering rules, so that they could make more money, they can improve their profitability, what would our country say? And what does every country around the world in the financial system say? 

Professor Allen: No.

Senator Warren: Right, okay. So, Mr. O'Leary, I know that you are a big supporter of crypto even after you lost $10 million in FTX’s collapse. But you're an experienced investor. So let me ask you, do you believe that the potential benefits of crypto are so promising that we should accept weaker anti-money laundering rules and weaker compliance from crypto firms than we require from banks, from brokers, and from Western Union?

Kevin O’Leary, Investor: No, I think we should apply the same regulatory structure that we apply to existing trading of stocks and bonds. An exchange is tied to broker-dealers. That is not complicated, it’s already been implemented in other countries. And so and I take issue, senator with your concept that it makes it easier to do money laundering. Currencies have been used for drug trafficking schemes since the 60s and the American dollar when it was thrown out of a Piper aircraft in a duffel bag. The American dollar is also used by bad actors all the time.

Senator Warren: Mr. O’Leary, I appreciate your point that everyone tries to engage in money laundering. That's what terrorists do, that’s what drug dealers do, and that's what states like Iran and North Korea have done. The only point I'm trying to make is, should the same rules against money laundering apply to crypto in the way that they apply to banks, to stockbrokers, to credit card companies, to Western Union? I think your answer to that was yes. Is that right?

Mr. O’Leary: No. 

Senator Sherrod Brown: Mr. O’Leary, you have 30 seconds, keep your answer short. 

Mr. O’Leary: It’s not yes. I'm just saying if you know your client rules on both sides of the transaction and use a crypto such as USDC that is regulated, you solve this problem senator, overnight. 

Senator Warren: Well, I appreciate that you want the same kind of rules to apply to everyone. And we can talk about what's needed to make that happen. 

The dark underbelly of crypto is its critical link in financing terrorism, human trafficking, drug dealing, and helping rogue nations like North Korea and Iran. Crypto doesn’t get a pass to help the world’s worst criminals—no matter how many television ads they run or how many political contributions they make.

It is time Congress makes the crypto industry follow the same money laundering rules as everyone else. That’s why Senator Marshall and I introduced a bipartisan bill today that requires crypto to follow the same money laundering rules that every bank, every broker, and Western Union all have to follow today.  

Thank you, Mr. Chairman.