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Industry Experts Express Concerns Regarding Unregulated International Exchanges, Highlight Need For Investigative Resources



De Silva

On June 8, the Terrorism and Illicit Finance Subcommittee heard testimony from public and private sector experts on the potential exploitation of virtual currency by bad actors. Education, additional investigative resources, and enhanced international cooperation are key to mitigating criminal finance that utilizes virtual currency.

This morning, the Terrorism and Illicit Finance Subcommittee held a hearing entitled “Virtual Currency: Financial Innovation and National Security Implications.” ETHNews previously profiled the hearing’s witnesses.

In his opening statement, Congressman Ed Perlmutter (D-CO7), ranking member of the subcommittee, worried about American law enforcement capabilities:

“The reality is criminals today use cash, money service businesses, and other means for illicit purposes, but we’ve provided law enforcement the regulatory tools to catch the bad guys,” said Perlmutter. “The question is, ‘does law enforcement have the tools to catch the criminals using these new technologies and currencies?’”

He added, “The rise of new cryptocurrencies threatens to disrupt the way banking is philosophically conducted, potentially undermining the United States’ dominance over money flows.”

From a domestic law enforcement perspective, former FBI agent Luke Wilson provided some relief. “My experience is that bitcoin is not or should not be alarming to investigators or private companies. Bitcoin is thought to be anonymous by some criminals. In reality, it’s far from anonymous.” Wilson briefly recounted cases in which criminal usage of bitcoin aided the Bureau’s investigations.

On an international level, the picture became more complicated. In her testimony, Kathryn Haun, assistant US attorney and digital currency coordinator for the US Department of Justice, focused on the problem of unregulated international exchanges.

“It appears that terrorists are not using the registered exchanges in the US, but are using the unregistered overseas ones that don’t allow for US anti-money laundering, or AML, requirements,” said Haun. “They’re also using anonymous peer-to-peer exchanges like, which operates as a sort of Craigslist.”

Haun stressed the importance of treaties to support international investigations of criminal virtual currency transactions.

“Many exchanges do not require names, let alone identification, to open accounts and this leads to creation of anonymous accounts. Nearly one hundred percent of ransomware campaigns and hacking rings use these overseas unregistered exchanges,” said Haun.

“We’ve gone after some of the exchanges in the US like this with success, but the majority of noncompliant exchanges are overseas and this poses formidable legal challenges, jurisdictional challenges. Our antiquated mutual legal assistance treaty process, or the MLAT process, takes months of bureaucratic maneuvering and that’s in the best-case scenario when we’ve got cooperative partners on other sides.”

The witnesses seemed to agree that recent terror attacks have been low-budget operations. Knives, trucks, and guns do not require an elaborate financing network.

Jonathan Levin, co-founder of Chainalysis, noted “The current use of virtual currencies is mainly financial speculation on their eventual impact on the world. The use of virtual currencies by terrorist organizations is very limited due to lack of awareness and trust placed in virtual currencies.”

Unfortunately, the more pressing concern is large-scale disruptive attacks.

Haun explained, “We see more use of cryptocurrency in the areas of cybercrime, drug trafficking, money laundering, and financial fraud.  These activities have major national security implications, of course. Ransomware is a compelling example because it can cripple critical infrastructure – hospitals, first responders, public transit systems. Last month’s WannaCry attack affected over 10,000 businesses, hospitals, and public agencies in over 153 countries.”

Scott Dueweke, president of The Identity and Payments Association, touched on the significance of Chinese and Russian technological advancement and cryptocurrency development.

“China and Russia are beginning to dominate a new global digital financial system, of which we are not necessarily fully members of or aware of,” said Dueweke. “Other virtual currencies like the centralized Russian and Chinese virtual currencies far exceed bitcoin, and their combined value with remittance systems and mobile payment systems exceeds $2 trillion.”

In total, the US faces challenges domestically and globally as it seeks development in the FinTech space. Maintaining the delicate balance that allows for innovation while preventing abuse demands continued government and private sector coordination.

Video of the hearing in its entirety can be viewed here.

Matthew De Silva

Matthew has a passion for law and technology. He graduated from Georgetown University, where he studied international economics and music. Matthew enjoys biking and listening to tech podcasts. He lives in Los Angeles.

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