Treasury Dept Sec: Crypto Wallet ID Rules Will Allow Innovation

crypto, USA, regulations, treasury department

A proposal being reviewed by the U.S. Treasury Department that would ID who controls unhosted cryptocurrency wallets would also allow innovations related to fighting financial crime, Deputy Secretary Wally Adeyemo said at Consensus 2022, according to a CoinDesk report Friday (June 10).

Adeyemo told attendees that the anonymous storage of crypto outside of regulated wallets has enabled users to get around sanctions and anti-money laundering (AML) regulations, and the department is “working to address the unique risks associated with unhosted wallets.”

He warned that wrongdoers could take advantage of current system.

“Unhosted wallets are effectively just addresses on a blockchain,” Adeyemo said. “It can be difficult to determine who really owns and controls them, creating opportunities to abuse this heightened anonymity.”

In 2020, then-Treasury Secretary Steven Mnuchin first proposed know-your-customer (KYC) identity checks on people using private wallets, but the proposal has been repeatedly delayed, the report said. The EU has adopted similar measures, leading to criticisms over innovation stifling and privacy concerns.

“I understand and respect the need for and the desire for privacy, but we need to make sure that we’re also in a place where we’re not creating avenues where those who want to move funds illicitly are able to use digital assets more than traditional assets,” said Adeyemo.

Related: Regulatory Rumblings Force Companies to Rethink their Ransomware Policies

In March, President Joe Biden signed new legislation that “strongly advises” companies to report ransomware attacks to the Department of Homeland Security, but it didn’t create any penalties for failing to do so. It does, however, create more problems for executives trying to decide whether to pay ransomware demands at the risk of violating sanctions, which can bring stiff penalties.

The new Treasury Department advice has also unsettled firms that facilitate such payments, from lawyers to insurance companies with ransomware policies, according to Michael Phillips, chief claims officer for cyber-insurance company Resilience.