The US Secret Service is worried about the illicit use of cryptocurrencies. A high-ranking official of the agency has urged Congress to con...
The US Secret Service is worried about the illicit use of cryptocurrencies. A high-ranking official of the agency has urged Congress to consider additional legislation to address anonymity-enhanced cryptocurrencies and services intended to obscure transactions on blockchains such as tumblers or mixers.
Also read: Yahoo! Japan Confirms Entrance Into the Crypto Space
Undermining US Laws
Deputy Assistant Director of the US Secret Service’s Office of Investigations, Robert Novy, gave a testimony before the House of Representatives Financial Services Subcommittee on Terrorism and Illicit Finance on June 20.
Novy explained that his agency is primarily concerned with the use of cryptocurrencies “in criminal schemes that undermine the integrity of financial and payment systems, their use in cases of fraud, and their general use as a means of money laundering,” stating:
While some digital currencies have operated lawfully, others have been used extensively for illicit activity…The growing illicit use of digital currencies risks undermining the effectiveness of existing U.S. laws and regulations, especially those intended to limit the ability of criminals to profit from their illicit activities.
Asking Congress for Help
In his testimony, Novy asked “Congress for help in preventing cryptocurrencies like monero and zcash, which provide users with enhanced privacy and anonymity features, from being used for illicit purposes,” Forbes elaborated.
Referencing “the global nature of the Internet and modern communications,” Novy claimed that “digital currencies are particularly well-suited for supporting crimes that are transnational in nature.” He proceeded to tell Congress:
We should also consider additional legislative or regulatory actions to address potential challenges related to anonymity-enhanced cryptocurrencies, services intended to obscure transactions on blockchains (i.e. cryptocurrency tumblers or mixers) and cryptocurrency mining pools.
According to Forbes, Greg Nevano, an official in the investigations division of the Immigration and Customs Enforcement, agreed with Novy. “These new anonymity-enhanced cryptocurrencies are clearly ripe for illicit use in an effort to subvert legitimate law enforcement inquiries,” he was quoted, adding the claim that “although it is more difficult to trace the movement of illicit proceeds using these newer anonymity-enhanced cryptocurrencies, it is not impossible.”
Novy further suggested that law enforcement must adapt his agency’s “investigative tools and techniques to dismantle criminal groups that use these instruments for fraudulent activity or money laundering.”
What Criminals Prefer
Novy also claimed that “in recent years, criminals have increasingly used digital currencies to facilitate illicit activities on the Internet.” He elaborated, “some digital currencies are primarily used to purchase illicit goods and services,” while others “are primarily used for money laundering—particularly transnational transfers.”
In his testimony, Novy described the characteristics of digital currencies preferred by criminals based on the agency’s investigations.
Firstly, they have “widespread adoption as a medium of exchange for intended criminal activities,” in addition to “the greatest degree of anonymity.” Their ability for “protection against theft, fraud, and lawful seizure” is also important, as is the ability to “be readily exchanged to and from their preferred currency.” The last characteristic mentioned is “the ability to quickly and confidently transfer value transnationally.”
Citing that “the Secret Service has been at the forefront of investigating the illicit use of digital currencies,” Novy detailed the agency’s prior work in shutting down “two major centralized digital currencies that supported extensive criminal activity: E-gold Ltd. (in 2007) and Liberty Reserve (in 2013).” In addition, the agency also recently shut down a number of crypto exchanges including Western Express and Btc-e, he conveyed.
Zcash Company’s Response
Zcash, a cryptocurrency with strong privacy features, was created to protect the privacy rights of everyday citizens. The Zcash company, led by the famed computer scientist Zooko Wilcox, exists to support the privacy coin, but claims that it does not control Zcash or have special access to the cryptocurrency’s transactions.
The company responded to the Secret Service’s recommendations in an official blog post on Friday:
We believe it is in the best interest of the citizens of the United States, the US Secret Service, and other governmental organizations to advocate for privacy rights and protect its citizens and businesses from harm.
What do you think of the US Secret Service’s recommendations to Congress? Let us know in the comments section below.
Images courtesy of Shutterstock, Twitter, and Zcash Company.
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