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US Government Accountability Office Urges Crypto Regulations to Counter Human Trafficking and Drug Cartels

Mayer & Brown |Sean P. McDonnell and Gina M. Parlovecchio | Jan 13, 2022

crypto for bad use - US Government Accountability Office Urges Crypto Regulations to Counter Human Trafficking and Drug CartelsOverview

  • On January 10, 2022, the US Government Accountability Office (“GAO”) issued an 84-page report warning of the role that virtual currencies continue to play in human and drug trafficking and urging tighter regulation of certain kinds of virtual currency transactions.
  • The report specifically identifies gaps in registration requirements for virtual currency kiosks—commonly described as “Crypto ATMs”—that may hamper law enforcement’s ability to investigate money laundering, drug and human trafficking and other criminal activity.

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  • To address this issue, GAO recommends that the Financial Crimes Enforcement Network (FinCEN) and Internal Revenue Service (IRS) review the existing registration requirements applicable to virtual currency kiosks and begin to require additional data from registered kiosk operators.
  • Given GAO’s role as a key federal watchdog agency, its report is likely to further bolster ongoing efforts by the Biden administration and the US Treasury Department to implement more stringent regulations of virtual currencies across a variety of settings.
  • Clients who are operating or considering operating money services businesses that facilitate virtual currency transactions should be building compliance programs and enhancing internal controls now to anticipate and prepare for increased regulatory and law enforcement scrutiny.

Looking forward

Based on the foregoing, we anticipate that FinCEN, IRS and other components of the US Treasury Department will continue to ramp up regulatory scrutiny of virtual currency exchanges and kiosk operators, including by strengthening existing MSB registration requirements. We also expect federal law enforcement agencies will devote increasing amounts of resources to examining those operators that they perceive to be skirting the rules.

See:  US House Committee on Financial Services Provides Insight into Regulatory Needs of Crypto Industry

Indeed, the DOJ has already begun to criminally charge unlicensed operators of virtual currency kiosks who fail to meet FinCEN and US Treasury’s registration and reporting requirements. Clients who are operating or considering operating MSBs that facilitate virtual currency transactions should be building compliance programs and enhancing internal controls now to anticipate and prepare for this increased regulatory and law enforcement scrutiny.

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