Clanity Blog News & Events
Clanity Blog News & Events


05.12.22 10:32 AM By Clanity Team

Clanity community, do you remember back in March, when President Biden signed Executive Order 14067, (EO-14067) “Ensuring Responsible Development of Digital Assets”?  I’m sure you do.  Think back, do you recall the President directed numerous federal agencies to develop a coordinated interagency action plan for mitigating the national security risk surrounding digital asset related illicit finance? Does that sound familiar?  Well, Clanity friends, Treasury has released the action plan and we are going to explore the highlights in this article.

Essentially, the Action Plan consists of four major parts: 
  • Illicit Financing Risks Identified in the National Risk Assessments 
  • Vulnerabilities and Illicit Financing Threats
  • U.S. Government Efforts to Mitigate Digital Asset Illicit Financing Risks 
  • Proposed Priority Actions

Part 1:  Illicit Financing Risk Identified in the National Risk Assessment (NRA)

Treasury’s Action Plan begins with the obvious—the virtual asset ecosystem, e.g. Clanity and others, has expanded rapidly since the prior NRAs was conducted in 2018. Good start.  The Action Plan then identifies four illicit financing risk:

Money Laundering.  According to Treasury, ransomware cybercriminals, drug trafficking organizations, and fraudsters are using virtual assets, among other methods, to launder illicit proceeds.  Yes, Treasury Secretary Yellin, however, criminals prefer cash because it leaves no trail on a blockchain.

Proliferation Financing.  The Action Plan takes both sides of the issue my Clanity friends.  First it says digital assets could be used to buy a weapon of mass destruction but in the same sentence says there is no evidence to that affect.  Thus, begging the question, which is it?

Terrorist Financing.  Treasury say U.S. authorities have identified several instances where terrorist groups and their financial supporters solicited funds in virtual assets, but such cases are still less prevalent than those involving traditional financial assets.  At Clanity we aren’t surprised because public blockchains use distributed, open source, publicly transparent ledgers.

Part 2:  Vulnerabilities and Illicit Financing Threats

CrossBorder Nature and Gaps in AML Regimes across Countries.  Treasury says it is concerned virtual assets could be used to transfer value across borders very quickly.  That is what Clanity and countless other crypto blockchain companies want to do.  What is the problem?

AnonymityEnhancing Technologies 
Treasury claims criminals are increasingly using anonymity enhancing technologies on an opaque blockchain.  We are not in a position dispute the veracity of Treasury’s statement, but at Clanity we are not interested in anyone using our digital asset to commit crimes. 

Treasury listed disintermediation last to minimize the point, but disintermediation is the point!  Blockchain in general, and Clanity being no exception, represent a re-tooling of the financial infrastructure away from mega-centralized financial institutions. Hooray!

Part 3:  U.S. Government Efforts to Mitigate Digital Asset Illicit Financing Risks 

Issue Guidance.  Treasury starts their list of government actions by listing numerous interpretive and clarifying guidance and policy statements since 2013. Clanity and crypto universe hear the words but let’s be straight, the US Government has not established clear crypto laws, regulations, or legislation. Everyone knows that.

Law Enforcement.  Treasury claims law enforcement initiatives and sanctions designations, to expose and disrupt criminals misusing virtual assets and their facilitators, somehow equals efforts to set clear standards.  At Clanity we don’t agree.  Law enforcement is not the way to set crypto policy.  Law enforcement follows the policy not vice versa.

International Coordination.  Treasury pats itself on the back by saying the United States led efforts at the Financial Action Task Force (FATF), the global intergovernmental body that sets international standards to prevent and address illicit financing, to develop and adopt the first international standards on virtual assets during the United States’ FATF presidency. But again, where is the policy?  Please tell us Clanity followers on what government website, Treasury Department or any federal department, can we click to read the official government policy?  Nowhere that we could find.

Part 4:  Priority Actions

Action 1:  Monitor Emerging Risk.  Under this section, Clanity wants you to know Treasury says it will:

  • use its “unique” access to data (euphemism for spying?); 
  • monitor development of central bank digital currencies (CBDC) in other countries (China is far ahead of us); 
  • support the Federal Reserve attempt to create a US CBDC; 
  • share data with law enforcement; 
  • update the national risk assessment; 
  • accelerate training on blockchain analytics; and
  • continue funding foundational, and translational research and development in security, privacy, accountability, and transparency issues to help detect or mitigate illicit finance. 

Action 2:  Improve Global AML Regulation and Enforcement

I think everyone at Clanity understands what the Treasury means by improving global AML regulation and enforcement.  To avoid any confusion, let’s spell it out clearly--support the existing US led international framework to update international standards.  In other words, everyone around the world follows us! 

Actions 3 and 4 are Update Bank Secrecy Act Regulations and Strengthened U.S. AML Supervision of Virtual Asset Activities.
In plain Clanity English this means Treasury and other federal agencies plan to write regulations that grant themselves more power. 

Action 5 Holding Accountable Cybercriminals and Other Illicit Actors
Everyone at Clanity wants that.  Go catch the bad guys; leave Clanity and the remaining 99% of honest crypto alone. Will FTX be held accountable? We shall see. 

Action 6 Engage with the Private Sector
Here Treasury goes into the good cop/bad cop routine.  It says the private sector better cooperate and offers to promote the private sector’s use of emerging technologies to strengthen AML compliance. Thanks, I guess.

Action 7 Support U.S. Leadership in Financial and Payments Technology
Blockchain represents a serious threat to the established order; Treasury knows it (so does Clanity) and Treasury understands blockchain is the next evolution of the financial infrastructure.  Treasury acknowledges the emerging replacement system is concentrated, for the moment, in the USA.  Therefore, Treasury appears to be thinking along these lines “… the emerging system is real, it is not going away, it is unnerving from a regulation point of view, but a worse outcome would be the loss of USA leadership in international finance therefore let’s shape it to our benefit.”

Written By: Nelson Hernandez

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