North Korea & Criminals Exploit DeFi Services for Money Laundering: US Treasury

North Korea & Criminals Exploit DeFi Services for Money Laundering: US Treasury

• The US Treasury Department released a report analyzing decentralized finance and revealed that North Korea and other criminals are using DeFi services for money laundering.
• The report noted that some platforms had “affirmatively touted a lack of AML/CFT controls as one of the primary goals of decentralization,“ thus allowing actors to bypass sanctions from the US and UN.
• The Treasury recommended increased regulatory supervision, guidance to DeFi platforms with respect to AML/CFT, and addressing any regulatory gaps.

US Treasury Releases Report on Decentralized Finance

The United States Treasury Department has released a new report on decentralized finance (DeFi), which examines how it is being used for money laundering activities. In its „Illicit Finance Risk Assessment“ report, the department highlighted how certain vulnerabilities can be exploited by organizations from the Democratic People’s Republic of Korea (DPRK) as well as other scammers.

Money Laundering Exploiting Vulnerabilities in DeFi

The report pointed out that many groups engaged in illicit activity from North Korea were able to benefit from certain non-compliant Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) regulations found in some DeFi services. Due to this lack of control, these services enable theft of funds. Brian Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence commented: “Illicit actors, including criminals, scammers, and North Korean cyber actors are using DeFi services in the process of laundering illicit funds.“

Most Money Laundering via Fiat or Outside Crypto Ecosystem

Despite these warnings regarding DeFi services, it was noted that most money laundering occurs through fiat currency or outside the digital asset ecosystem. As such, it is recommended that increased regulatory supervision over platforms offering DeFi services should be implemented alongside guidance given to those same platforms with respect to AML/CFT regulations; any existing regulatory gaps should also be addressed accordingly.

Affirmative Touting of Lack of AML/CFT Controls

The report further discussed how some projects had „affirmatively touted a lack of AML/CFT controls as one of the primary goals of decentralization“, thus allowing actors to bypass sanctions imposed by both US and United Nations authorities. This has allowed them to launder their illegally gained funds more easily.

Increased Regulatory Supervision Recommended

In order to prevent such activities from occurring in future, increased regulatory supervision over all parties offering DeFi services is highly recommended by officials; along with this guidance should also be given regarding AML/CFT measures whilst any existing regulatory gaps must also be closed off promptly too.