Illegal Crypto Financing Activities Pose National Security Risks, US Regulator Pushes to End Anonymity

US regulators are asking for an end to cryptocurrency anonymity, citing the threat it presents to national security.

The US Commodity Futures Trading Commission's Christy Goldsmith Romero stated that cryptocurrencies are being used to finance cybercrime, including criminal acts against individuals, businesses, hospitals, and other critical infrastructure, Reuters reports.

What is her proposed solution? Romero claimed at a City Week conference in London that anonymity allows digital currencies to support unlawful operations.

She also adds that the lack of transparency in the crypto market must be addressed, and legally compliant crypto enterprises should not use "mixers" or software tools that effectively anonymize consumers by pooling and scrambling cryptocurrency from hundreds of addresses.

How Crypto Is Being Used to Fund Illegal Activities

Cybercriminals use cryptocurrencies to launder money, exploiting their anonymity and decentralized nature. They can conceal their illegal revenues from the law by doing so.

The fact that registering a crypto account or address is a quick and free process, and accounts can be used several times to receive and move payments, simplifies the process.

According to the United Nations Office on Drugs and Crime (UNODC), computer scripts can be used to set up large-scale money laundering schemes involving thousands of payments at a minimal cost. Furthermore, the volatility of cryptocurrency assets justifies abrupt or rapid changes in exchange rates.

Platforms like mixers have emerged to "mix" potentially traceable crypto money to evade detection. Initially, funds are sent from many sources to a single account, where they are combined before being split and delivered to multiple addresses. The same procedure can be performed several times to further hide the funding source.

The Need to Prohibit Crypto Anonymity

Crypto financing of illegal activities has been a growing concern for the US, European Union, Britain, and elsewhere regulators. Reuters tells us that Romero warned that fraud is a hallmark of digital asset markets, and its human toll may be overlooked.

In her speech, she stressed that it is essential for governments and the industry to address the anonymity that makes crypto so attractive to illicit finance. She added that Congress is already considering new laws on handling anonymity and digital identity.

The Commissioner urged compliant cryptocurrency companies to demonstrate that they have internal procedures to prevent money laundering and terrorism funding.

Last year, the United States sanctioned virtual currency mixer Tornado Cash, alleging that it assisted hackers, particularly those from North Korea, in laundering cybercrime gains.

Romero stressed that any crypto enterprises can remove themselves from mixers and anonymity-enhancing technology while still offering financial privacy to their consumers.

Alarming Numbers

A 2022 report by Chainalysis, a blockchain data company, has revealed that criminals laundered cryptocurrencies worth $8.6 billion in 2021, representing a 30% increase from the previous year.

The report suggests that if law enforcement agencies concentrate on disrupting critical services used for crypto laundering, they could effectively dismantle criminal networks.

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