Three successive reports published by the US Department of the Treasury in 2023 and 2024 have highlighted the increasingly frequent use of cryptocurrencies for money laundering and financing illicit activities. Although cash remains the main medium, virtual currencies are a concern for authorities due to their relative anonymity and the difficulty in tracing transactions. 

Cryptocurrencies Increasingly Used by Criminals

In its three latest national risk assessments, the US Treasury points out that criminals, fraudsters, and illegal actors are increasingly turning to cryptocurrencies to launder money derived from fraud, drug trafficking, human trafficking, or corruption.

The decentralized nature of cryptocurrencies like Bitcoin, which allows a certain level of transaction anonymity, is to blame. Cryptographic mixers and tumblers, which obscure the trail between the source and the destination of funds, are also under scrutiny.

Even though the use of cash remains predominant, the rising volumes of money laundering through cryptocurrencies are concerning US authorities. The Treasury talks about amounts of several hundred million dollars laundered each year through this method.

Responses on the Table to Strengthen Supervision 

In light of this, the US government is considering various responses to enhance the supervision and traceability of cryptocurrency transactions. The goal is to align anti-money laundering obligations between traditional players and the crypto world.

The Biden administration has thus proposed a clearer definition of virtual asset service providers. With the goal of extending customer due diligence and suspicious activity reporting requirements to them. Improved coordination among government agencies is also recommended for effectively combating this phenomenon.

On the legislative front, a bipartisan bill passed in the Senate in 2023 aims to require all issuers of stablecoins to obtain a banking license and to be subject to the surveillance of authorities. Restrictions on the use of tumblers could also emerge.

However, the challenges remain immense in a constantly evolving cryptocurrency sector. International cooperation is essential to curb a phenomenon that is by nature transnational.

Despite the appeal of decentralized virtual currencies, US authorities are determined not to repeat the errors of the past that allowed money laundering to proliferate. But finding the right balance between supervision and technological innovation proves tricky. The crypto sector will also need to double down on its internal efforts to cleanse its image and preserve its credibility.