Crypto must end anonymity for illegal funding, US regulator says

LONDON, April 25 (Reuters) – Anonymity allows crypto assets to finance illegal activities, a top U.S. regulatory official said on Tuesday, posing a national security risk that must be addressed.

Christy Goldsmith Romero, a commissioner at the US Commodity Futures Trading Commission, said cryptocurrencies were used to fund cybercrime with victims including individuals, companies, hospitals and critical infrastructure.

“Fraud is a hallmark of digital asset markets and the human toll can be overlooked,” Romero told a City Week conference in London, adding that the lack of visibility in crypto markets needs to be addressed.

“It is important for governments and especially the industry to address what makes crypto so attractive to illicit finance, and that is the lure of anonymity,” she said.

Legally compliant crypto companies should not use “mixers” or software tools that effectively anonymize users by collecting and encrypting cryptocurrencies from thousands of addresses.

“Congress is already considering new laws addressing anonymity and digital identity,” Romero said.

Compliant crypto companies must demonstrate that they have internal controls to prevent money laundering and terrorist financing.

Last year, the United States imposed sanctions on the virtual currency mixer Tornado Cash, alleging that it helped hackers, including from North Korea, launder the proceeds of cybercrime.

“It is possible for all crypto companies to distance themselves from mixers and anonymity-enhancing technology while providing financial privacy to customers,” Romero said.

Regulators in the US, EU, UK and elsewhere are trying to get their arms around crypto before global norms are agreed and put in place for a borderless sector.

“As a result, different people are doing different things, and yes, certainly, firms are picking and choosing where to set up shop,” John Schindler, secretary-general of the Financial Stability Board (FSB), the G20’s coordinator of financial rules, told the conference.

The FSB will soon issue the final version of its recommendations for the regulation of crypto-assets, he said.

“We’re catching up to this innovation that’s moving so quickly,” Schindler added.

Additional reporting by Elizabeth Howcroft; Editing by Alexander Smith

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