U.S. claims decentralized financial services are being used illicitly

There is a growing number of North Korean, cybercriminals, ransomware attackers, thieves, and scammers who use disbursed finance (DeFi) services in order to transfer and launder their illicit proceeds, the Treasury Department warned on Thursday.

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Known as DeFi platforms, they allow users to lend, borrow and store money, usually in crypto-assets and stablecoins, without the need to go to a bank.

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It has been found that illicit actors are exploiting vulnerabilities in U.S. and foreign anti-money laundering and counter-terrorism financing (AML/CFT) regulations and enforcement as well as the technology that supports these services. This is a new illicit finance risk assessment of decentralized finance by the Treasury Department.

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The assessment concluded that the most significant illicit finance risk in this domain is posed by the DeFi services that do not comply with these obligations in order to prevent money laundering and terrorism financing.

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"As a result of our analysis, we have come to the conclusion that illicit actors, such as criminals and scammers, as well as North Korean cyber actors, are using DeFi services to launder illicit funds," Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian Nelson said.

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It has been emphasized by Nelson that the private sector should use the results of the risk mitigation assessment to inform their strategies and take measures so that illicit actors do not have access to decentralized financial services.

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Additionally, the assessment disclosed that there is a possibility that DeFi services may not fall within the scope of existing AML/CFT obligations, that international AML/CFT standards may not be implemented, and that poor cybersecurity practices may be in place.

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Among the recommendations in the assessment was the strengthening of U.S. AML/CFT supervision, considering additional guidance for the private sector in terms of the DeFi obligations, and addressing any regulatory gaps relating to these services if any exist.