The U.S. Treasury Department is progressing toward addressing the anonymity of unhosted crypto wallets as part of Joe Biden’s wider strategy to tackle illicit finance involving digital assets.

Following two rules proposed by the Financial Crimes Enforcement Network (FinCEN) in 2020 that enforce transaction reporting on unhosted wallet transactions exceeding $10,000, while also compelling banks to collect information on a customer and their counterparty for any transaction exceeding $3,000 involving an unhosted wallet, U.S. Deputy Treasury Secretary Wally Adeyemo affirmed that the government agency has made progress.

Speaking at Consensus 2022, Adeyemo confirmed:

“…we are working to address the unique risks associated with unhosted wallets…Fundamentally, financial institutions need to know who they are transacting and doing business with to make sure they are not making payments to criminals, sanctioned entities, or others. When it comes to unhosted wallets, we are working to provide them the information they need to avoid facilitating these kinds of illicit payments.”

Increased scrutiny of unhosted wallets emerged after sanctions were imposed on the Russian Federation following its invasion of Ukraine. However, evidence is scant that Russians used crypto to skirt such sanctions.

Without going into details, Adeyemo went on to describe the Travel Rule, which would expose the real identities of senders and receivers of cryptocurrency funds to all financial institutions involved in a transaction, to safeguard national security and enforce the Bank Secrecy Act.

To address concerns about privacy infringements, Adeyemo said that the agency is determined to draft regulations benefitting the broader goal of national security while allowing innovation in payment technologies.

“America’s international position and ability to safeguard our national security rests in no small part on our global financial leadership. We in government know as you do that the future of the global financial system is increasingly digital.”

The response from the Treasury Department follows an executive order issued by U.S. President Joe Biden for multiple government agencies to research cryptocurrencies. These agencies include the Treasury Department, the Securities and Exchange Commission, and the Office of the Comptroller of the Currency.

Section 7 of the Executive Order addresses risks associated with cybercrime involving cryptocurrencies and tasks the Secretary of the Treasury and six other government officials with submitting supplemental annexes to the president, describing their views on “illicit finance risks posed by digital assets, including cryptocurrencies, stablecoins, CBDCs, and trends in the use of digital assets by illicit actors” within 90 days of their submissions to another agency, the Congress of the National Strategy for Combating Terrorist and Other Illicit Financing.

Within 120 days of submission to the Congress of the National Strategy for Combating Terrorist and Other Illicit Financing, the Treasury Secretary and others would need to submit a coordinated interagency plan for mitigating the risks of illicit finance.

The Treasury Department joins Senator Cynthia Lummis (R-Wyo) and Senator Kirsten Gillibrand (D-NY) who released draft regulations earlier this week. While recently introduced, the new bill won’t really come into effect until at least 2023, as upcoming mideterm elections are of priority. In its current form, the bill explains what types of stablecoins would be allowed, which cryptocurrencies fall under the jurisdiction of the CFTC, and which fall under the purview of the SEC.

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The post U.S. Treasury Department on Track to Regulate Unhosted Wallets appeared first on BeInCrypto.

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