US Treasury Misunderstands DeFi AML Compliance Requirements: Coin Center
Important takeaways
- Coin Center has responded to the US Treasury Department’s “DeFi Illicit Finance Risk Assessment” report.
- The crypto advocacy group criticized the Treasury for assuming that all DeFi protocols were not compliant with AML regulations.
- However, it praised the report for recognizing that DeFi presented very little risk of illegal activity compared to the traditional banking sector.
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The US Treasury Department believes that DeFi protocols are de facto non-compliant with AML regulations. Coin Center issued a report challenging that perception.
Answer to the Treasury’s requirements
The US Department of the Treasury issued a “DeFi Illicit Finance Risk Assessment” report yesterday. The crypto industry is now giving its answer.
Today crypto advocacy organization Coin Center released an analysis of the Treasury’s report. The article, titled “Treasury’s new DeFi risk assessment relies on poor frameworks and makes potentially unconstitutional recommendations,” claims that the Treasury’s stance tends to take for granted that all decentralized finance protocols are non-compliant with anti-money laundering regulations.
According to Coin Center, the biggest problem with the Treasury report is that it assumes that every single DeFi project does not comply with the Bank Secrecy Act – regardless of whether the protocol is actually required to comply. Coin Center argued that instead of lumping all DeFi protocols together, the government should start differentiating projects by the services they offer. For example, a protocol enabling the trading of commodity derivatives and a protocol enabling the transfer of currencies should comply with different AML regulations.
Coin Center also criticized the report for repeatedly denying the notion of “non-custodial” protocols, which would exempt DeFi developers from having to comply with BSA regulations. The report “leaves the reader to suspect that these individuals have found an insidious loophole rather than simply going and exercising constitutional rights to publish innovative research and software,” the advocacy group argued.
Still, Coin Center praised the report for recognizing that most illicit financing is not conducted using DeFi protocols, but through the traditional banking sector. For example, non-compliant international centralized crypto exchanges – such as FTX – have been shown to pose a much greater risk of money laundering.
Disclosure: At the time of writing, the author of this piece owned BTC, ETH and several other crypto assets.
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