Illicit Finance Risk Assessment of Decentralized Finance
- Source: Treasury.gov
Treliant Takeaway:
Treliant’s experts know how to mitigate risk. Our team of professionals can help ensure that you are strengthening anti-money laundering and countering the financing of terrorism (AML/CFT) supervision and enforcement of virtual asset activities, including decentralized finance (DeFi) services, and closing any identified gaps in the Bank Secrecy Act (BSA).
Highlights:
On April 7, 2023, the U.S. Department of the Treasury published the 2023 DeFi Illicit Finance Risk Assessment. This risk assessment explores how illicit actors are exploiting DeFi services and vulnerabilities unique to them. The report finds that DeFi services often have a controlling organization that provides centralized administration and governance, and illicit actors are using these services to transfer and launder their illicit proceeds.
The most significant current illicit finance risk in this domain is from DeFi services that are not compliant with existing AML/CFT obligations.
The assessment identifies several vulnerabilities in the DeFi ecosystem, including:
- The lack of implementation of international AML/CFT standards by foreign countries
- Poor cybersecurity practices by DeFi services
- The reliance of DeFi services on centralized virtual asset service providers to access fiat currency
Lastly, the assessment poses several questions that will be considered as part of the recommended actions of the assessment to address illicit finance risks, including related to treatment of DeFi services that fall outside of the BSA definition of financial institution and areas for additional regulatory clarity.