US Treasury Publishes Laundry Lists of Crypto Risks to Consumers, National Security


The US Treasury Department released three publications related to digital assets on Friday, in response to US President Joe Biden’s executive order “Ensuring Responsible Development of Digital Assets”. One focuses specifically on crypto assets and a shorter action plan looks at countering illicit financial risks.

The discussion of crypto-assets in “Crypto-Assets: Implications for Consumers, Investors and Businesses” takes a cynical tone from the start, with the report’s introductory paragraphs stating:

“The potential for blockchain technology to transform the delivery of financial services, as embraced by developers and advocates, has yet to materialize.”

About half of the report is a descriptive overview of crypto assets, after which the authors focus on the risks they pose to users. It divides risks into three categories, the first of which are behavioral risks, that is, practices within the ecosystem. The report claims that cryptocurrency fraud losses skyrocketed in 2021 and are on track to catch up to that record this year. It also identifies different types of transparency issues.

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Operational risks, including “deficiencies in information systems or internal processes, human errors, governance and management failures, or disruptions from external events” are extensively considered. Closely related, but discussed separately, are the brokerage risks of crypto assets, the same risks that investors face in traditional markets, such as volatility and custody issues, but represent a “unique landscape” due to the nature of crypto.

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Possibly the most valuable part of the report is a comprehensive discussion of the opportunities and risks crypto assets pose to vulnerable populations. This is mainly due to the extensive statistical information in the section.

The report makes three recommendations: vigilant oversight, with increased enforcement, inter-agency cooperation and information sharing; that agencies produce more guidelines and rules, and for a greater educational outreach.

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The “Action Plan to Address Illegal Financing Risks of Digital Assets” approaches digital assets from a national security perspective. It recommends seven priority actions that mainly include control and enforcement efforts at home and abroad.

It also recommends updating the Bank Secrecy Act regulations and increasing private sector engagement through “the publication of official documents, discussions and Treasury programs that enable the sharing of public-private and private-private information.” .”