The US Department of the Treasury releases report on illicit financial risk assessment, providing research and recommendations for DeFi.

The U.S. Department of the Treasury has released the 2023 DeFi Illegal Financial Risk Assessment. The assessment considers the relevant risks of DeFi services, stating that the private sector should use the assessment results to develop risk response strategies, and recommends that the U.S. government take action to mitigate illegal financial risks associated with DeFi services.

The report points out that North Korea, cybercriminals, ransomware attackers, and other scammers and thieves are using DeFi services to transfer and launder illegal proceeds. Many DeFi services, which bear anti-money laundering and combating the financing of terrorism (AML/CFT) obligations, have failed to prevent these criminals from exploiting loopholes.

Deputy Assistant Secretary for Terrorist Financing and Financial Crimes Brian E. Nelson stated:

The purpose of the risk assessment is to understand the illicit financial risk environment to better protect the integrity of the U.S. financial system. Private sector entities seeking to capitalize on potential gains associated with DeFi services must address these risks. Private sector entities should use the results of this assessment to formulate their own risk management strategies and take clear actions in accordance with AML/CFT regulations and sanctions obligations to prevent illicit actors from abusing DeFi services.

The report emphasizes that DeFi services engaging in covered activities under the Bank Secrecy Act have AML/CFT obligations. Other vulnerabilities include certain DeFi services potentially exceeding existing AML/CFT obligations, weak or non-existent AML/CFT controls for DeFi services in other jurisdictions, and inadequate cybersecurity controls for DeFi services.

The report also recommends that the U.S. government take the following actions to mitigate illegal financial risks associated with DeFi services:

• Enhance AML/CFT supervision
• Consider providing additional guidance on AML/CFT obligations related to DeFi services to the private sector
• Evaluate enhanced measures to address any AML/CFT regulatory gaps related to DeFi services