Deputy
Treasury
Secretary
Wally
Adeyemo’s
April
9
testimony
before
the
U.S.
Senate
Banking
Committee
is
set
to
provide
a
veritable
state
of
the
union
address
on
illicit
finance,
and
crypto
will
undoubtedly
feature
prominently
at
the
hearing.
This
is
especially
true,
as
headlines
of
Russia’s
use
of
“crypto”
to
evade
sanctions
or
traffic
arms
are
making
the
rounds.
Notwithstanding
crypto’s
checkered
scorecard
over
the
last
few
years,
which
saw
record
losses,
market
manipulation,
fraud
and
clear
examples
of
highly
traceable
illicit
finance
(albeit
comparatively
small),
the
media’s
use
of
the
word
“crypto”
as
a
catchall
is
disingenuous.
Most
often,
it
is
named
single
products,
blockchains
and
platforms
such
as
Tornado
Cash
or
Terra-Luna
that
create
a
nexus
of
bad
activity.
The
digital
assets
industry,
like
banking,
is
not
monolithic.
Dante
Disparte
is
the
Chief
Strategy
Officer
and
Head
of
Global
Policy
for
Circle,
a
leading
financial
technology
firm
and
the
regulated
issuer
of
USDC.
Still,
unlike
banking,
“crypto”
writ
large
bears
a
disproportionately
heavy
reputational
burden,
despite
the
fact
that
most
illicit
activity
accrues
to
named
individual
entities,
products
or
other
services.
A
recent
TRM
Labs
report
titled
The
Illicit
Crypto
Economy
underscores
as
much.
Thus,
the
continual
use
of
a
catchall
term
“crypto,”
is
like
blaming
all
banks
for
the
misdeeds
of
a
single
bank.
Imagine
if
every
bank
in
the
world
had
to
atone
for
the
sins
of
a
single
bank
such
as
Danske
Banke,
which,
in
2022,
pleaded
guilty
to
$212
billion
of
Russia-linked
money
laundering?
While
Senators
weigh
the
merits
of
Adeyemo’s
important
testimony,
they
should
also
weigh
the
consequences
of
more
than
five
years
of
U.S.
policy
inaction
in
regulating
the
very
wayward
corners
of
the
crypto
industry
that
pose
the
greatest
threats
to
consumers,
markets
and,
indeed,
national
security.
U.S.
policymakers
and
regulators,
from
Treasury
Secretary
Janet
Yellen,
to
Federal
Reserve
Chairman
Jerome
Powell
(and
Deputy
Secretary
Adeyemo),
have
all
made
calls
for
Congressional
action.
They
focus
particularly
on
dollar-denominated
stablecoins,
the
crypto
world’s
digital
thrift,
much
of
which
borrow
the
trust
of
the
dollar,
without
being
accountable
to
U.S.
financial
crime
compliance
laws.
This
critical
regulatory
gap
can
be
addressed
with
the
urgent
passage
of
the
Clarity
for
Payment
Stablecoin
Act,
which
has
been
under
intense
development
for
the
past
two
years
and
has
passed
the
House
Financial
Services
Committee.
Rather
than
viewing
this
important
bill
as
a
body
of
law
that
would
legitimize
the
wayward
actors
and
misdeeds
of
some
products
and
services
in
crypto,
even
skeptical
Senators
and
members
of
Congress
should
view
this
bill
as
one
that
asserts
U.S.
leadership
over
digital
dollars
everywhere,
irrespective
of
their
form
factor.
Critically,
the
law
would
create
a
floor
for
all
issuers
to
comply
with
U.S.
anti-money
laundering,
countering
terrorist
financing
and
sanctions
obligations.
These
norms
should
be
applied
to
U.S.
issuers
of
payment
stablecoins,
as
well
as
their
international
counterparts,
many
of
which
are
being
licensed
to
issue
dollar-denominated
stablecoins
from
jurisdictions
like
the
United
Arab
Emirates,
Hong
Kong
and
Singapore.
Circle,
the
issuer
of
the
USDC
stablecoin,
follows
all
of
these
norms
today
under
our
obligations
as
a
U.S.
regulated
money
transmission
company
and
as
a
money
services
business
registered
with
the
U.S.
Treasury’s
Department’s
Financial
Crimes
Enforcement
Network
(FinCEN).
There
is
an
effective
deterrence
in
regulated
stablecoins
and
their
corresponding
value
chains
limiting
their
use
in
illicit
activity.
Abiding
by
laws,
working
with
peer
regulated
financial
institutions,
and
holding
the
line
on
financial
integrity
makes
a
big
difference.
That
is
why,
according
to
third-party
reports,
USDC
is
used
for
lawful
purposes
at
rates
of
99.95%.
Because
no
financial
system
is
risk-free,
good
crypto
companies,
banks
and
non-banks
together
with
law
enforcement,
would
be
well-served
in
adopting
a
model
of
collective
defense
when
it
comes
to
combating
illicit
finance.
The
crypto
industry
ensures
broad
conformity
at
the
operating
and
technological
levels
with
the
Travel
Rule
(which
sets
international
information-sharing
standards
to
prevent
money
laundering
and
terrorist
financing).
It
is
also
part
of
the
TRUST
Network,
which
Coinbase
and
at
least
58
other
crypto
companies
have
adopted.
Slow-moving
policymakers
would
do
well
in
looking
at
the
example
set
by
the
world’s
leading
financial
crime
compliance
bodies,
which
were
among
the
very
first
to
establish
globally
harmonized
rules
for
crypto
under
the
Financial
Action
Task
Force
(FATF)
recommendation
16,
imposing
the
Travel
Rule
on
international
crypto
transactions.
With
over
$150
billion
in
circulation,
stablecoins
are
too
important
to
ignore.
By
coupling
the
trust
of
the
U.S.
dollar
with
the
superpowers
of
the
internet,
they
are
poised
to
fundamentally
modernize
our
global
financial
system,
making
it
faster
and
fairer.
As
Deputy
Secretary
Adeyemo
will
undoubtedly
assert,
there
is
an
array
of
complex
threats
arrayed
against
the
U.S.
economy
and
our
leadership
in
the
world.
The
passage
of
clear
laws
for
novel
crypto
markets,
as
with
banking
before
it,
can
preserve
this
leadership.
