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Is it just me, or is the Treasury Department firing warning shots at DeFi?




All kinds of unsolicited users — ransom gangs, thieves, fraudsters and North Korea — are happily trading in decentralized finance and even money laundering, according to a new Treasury Department report. That’s because DeFi does not comply with anti-money laundering and anti-terrorism financial laws.

Poor anti-money laundering compliance as well as poor cyber security puts DeFi users at risk of theft and fraud, the Ministry of Finance says.

In the US, the Bank Secrecy Act – and some other regulations – require financial institutions to help authorities detect money laundering. In this article, the Treasury Department notes that a DeFi service may well be a financial institution under the BSA, even if it is decentralized, and must comply with the Act. Uh oh! It sounds like a warning shot. If I worked in DeFi, I’d be concerned that there’s going to be a crackdown; Treasury essentially says DeFi services are vulnerable under existing laws.

The report finds that “many” DeFi services do not comply with the BSA, which isn’t exactly a surprise given, you know, the entire history of Bitcoin as a currency-based way to hate the government. In some cases, the paper notes, DeFi services are purposefully decentralizing what they do to try to avoid money laundering enforcement. Unfortunately, says the Treasury, that is not how the law works at all.

There’s another warning shot in the paper: it recommends “stepping up engagements with foreign partners to push for stronger implementation” of anti-money laundering laws, which sounds a lot like the US leaning hard against other countries where DeFi may be established .



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