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Crypto privacy mixer Tornado Cash drew attention last week after the U.S. Treasury Department sanctioned the service. The implications of complying with the sanctions are starting to sink in with the rest of the industry, raising questions about just what compliance looks like.

This article explores how technical CBDC design choices can be used to make a CBDC inherently resistant to money laundering. These design choices not only further anti-money laundering (AML), but they can also help to better balance AML priorities with other goals including financial inclusion, privacy and compliance costs. Moreover, CBDCs provide an opportunity to measure the effectiveness of different design choices in real time. These measurements can facilitate the iterative redesign of CBDCs to identify optimal approaches to meeting regulatory objectives.

"Washington-based cryptocurrency trading platform, Bittrex Has been fined the sum of $29 million by the United States Treasury Department through the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN). "

The Swiss Financial Market Supervisory Authority (FINMA) has partially revised its Anti-Money Laundering Ordinance, clarifying the application of a maximum limit for unidentified crypto exchange transactions. The regulations, which will come into force on January 1, 2023, now reflect the latest amendments to Switzerland's Anti-Money Laundering Act and the Federal Council's Anti-Money Laundering Ordinance.

While some regulations (e.g., GDPR, FCRA, and CCPA) help to prevent institutions from freely sharing clients' sensitive information, some regulations (e.g., BSA 1970) require FIs to share certain financial data with government agencies to combat financial crime. This creates an inherent tension between the privacy and the integrity of financial transactions. In the past decade, significant progress has been made in building efficient privacy-enhancing technologies that allow computer systems and networks to validate encrypted data automatically. In this paper, we investigate some of these technologies to identify the benefits and limitations of each, in particular, for use in data sharing among FIs. As a case study, we look into the emerging area of Central Bank Digital Currencies (CBDCs) and how privacy-enhancing technologies can be integrated into the CBDC architecture. Our study, however, is not limited to CBDCs and can be applied to other financial scenarios with tokenized bank deposits such as cross-border payments, real-time settlements, and card payments.

The Financial Action Task Force (FATF) renewed its request for countries to implement the "travel rule", explaining that "many" member states have failed to implement the rule. The rule requires virtual asset service providers (VASPs) to communicate the personally identifiable information (PII) of senders to the VASPs of recipients and vice versa whenever the amount transacted is above $1,000. FATF claims that the travel rule is a "key requirement to prevent funds being transferred to sanctioned individuals or entities", and noncompliance "creates significant loopholes for criminals to exploit". Closing the gaps in global regulation of virtual assets is an urgent priority.

The Central Bank of the United Arab Emirates (CBUAE) issued new guidance concerning anti-money laundering (AML) and countering financing of terrorism (CFT) measures for crypto businesses on May 31, 2023. It outlines the risks arising from dealing with virtual asset and virtual asset service providers (VASPs), taking into account the recommendations of the Financial Action Task Force (FATF). The new rules will come into effect in one month. https://www.centralbank.ae/media/avwlktgy/cbuae-guidance-for-lfis-on-risks-related-to-virtual-assets-and-virtual-assets-providers_final-clean-version1.pdf

"The World Justice Project Rule of Law Index® is the world's leading source for original, independent data on the rule of law. Covering 139 countries and jurisdictions, the Index relies on national surveys of more than 138,000 households and 4,200 legal practitioners and experts to measure how the rule of law is experienced and perceived worldwide. "

The Financial Action Task Force (FATF) published an update on implementation of its standards on virtual assets (VAs) and virtual asset service providers (VASPs), with a focus on the travel rule. The travel rule requires VASPs to collect and share with each other personal data on participants (both senders and receivers) in transactions exceeding USD/EUR 1,000. In other words, the personal data of the transacting parties is supposed to "travel" along with their transfers. The report that notes only 11 of 98 surveyed jurisdictions are enforcing and supervising it. The also report highlights the continued need to monitor monitor the growth of, and illicit financing risks associated with DeFi and NFTs markets and unhosted wallets.

Reuters recently published a series of investigative reports on Binance and its association with illicit activity, claiming that Binance has become a hub for criminal activity and that it overlooked several money-laundering red flags. In a CoinDesk interview, Tigran Gambaryan and Matthew Price, key members of Binance's compliance team and former investigators at the U.S. Internal Revenue Service's cybercrime unit, disputed a number of these claims. In particular, they claimed that proportional to trading volumes, illicit trading on Binance is no worse than on other exchanges.

"We have very little solid evidence that harsher anti-money laundering rules reduce the volume of drug trafficking or other major crime. Matt Collins, a global development specialist who works with the Brookings Institution and the World Bank, says he is unaware of a single economic study clearly showing a reduction of crime following new AML rules (though he admits such a study might be difficult to design)."

The U.S. Department of the Treasury filed a Request for Comment (RFC) to seek feedback from the American people on the illicit finance and national security risks posed by digital assets. The filing is pursuant to President Joe Biden's recent Ensuring Responsible Development of Digital Assets Executive Order, and the subsequent Treasury Department Illicit Finance Action Plan.

The US Treasury Department Financial Crimes Enforcement Network (FinCEN) proposed designating crypto mixing as an area of "primary money laundering concern" following Hamas' attack on Israel. FinCEN assessed that the percentage of convertible virtual currency (CVC) transactions processed by CVC mixers that originated from likely illicit sources is increasing. FinCEN proposed requiring domestic financial institutions and agencies to "implement certain recordkeeping and reporting requirements" for transactions involving crypto mixers. https://www.fincen.gov/sites/default/files/federal_register_notices/2023-10-19/FinCEN_311MixingNPRM_FINAL.pdf

Chainalysis claims that terrorist groups' use of crypto-assets has been overstated. Some terrorist organizations do raise, store, and transfer funds using crypto-assets, but according to Chainalysis, terrorism financing is a very small portion of the already very small portion of crypto transaction volume that is illicit. Instead, terrorist organizations will likely continue to use traditional, fiat-based methods such as financial institutions, hawalas, and shell companies as their primary financing vehicles. Also, crypto-assets are not effective solutions to finance terrorism at scale due to blockchain technology's inherent transparency.

"The original $10,000 cash reporting threshold was set back in 1945 by Henry Morgenthau, a level that was ratified in 1972 after the passage of the Bank Secrecy Act. This level has never been adjusted. (Morgenthau also set a second and lower $1,000 threshohold, but this only applied when banknotes in denominations of $50 or higher were involved). Alas, inflation has been steadily eating into each thresholds' real value. When the Bank Secrecy Act was passed, $10,000 was worth $75,000 in today's dollars. In Morgenthau's time it was equal to $173,000. Either way, when the data collection apparatus was first established and the Pragmatic Compromise reached, most people's day-to-day cash withdrawals and deposits would have been sheltered from reported requirements. With the passage of time and inflation, a much wider swathe of civilian cash transactions have lost the protection offered by Morgenthau's $10,000 threshold. That means more snooping. It also means more debanking. Rather than absorbing the growing compliance costs of having "risky" cash-reliant customers, banks are closing accounts"

Stablecoin issuer Tether initiated a new voluntary wallet-freezing policy designed to combat activity connected with Sanctioned persons on the Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) List. This adds to the Sanctions controls Tether already enforces for wallets on its platform. Tether has taken additional precautionary measures, including freezing wallets previously added to the SDN List. "The primary objective behind this approach is to proactively prevent any potential misuse of Tether tokens and enhance security measures."

This Atlanta Fed article examines the evidence for claims about the connection between bank de-risking and anti-money laundering (AML) regulation. Specifically, it examines evidence for the claim that the cost of increased AML compliance and increasing bank fines have led to banks exiting entire sectors or geographical regions and that this de-risking is deeply damaging to economies. We draw on multiple sources of evidence, including financial flow data, discourse and social media analysis, an evidentiary history, elite interviews, and participant observation. In the end, it finds that substantial evidence contradicts this simple explanation of de-risking. Current efforts to review and reform the AML regime are overdue, and we need a sustainable answer to the issue of financial exclusion. That said, the evidence suggests that efforts to curb de-risking should not focus primarily on AML, nor should AML reform focus primarily on de-risking."

According to Chainalysis, crypto-based crime hit a new all-time high in 2021, with illicit addresses receiving $14 billion over the course of the year, up from $7.8 billion in 2020. However, this represented just 0.15% of total crypto-asset transaction volume, which grew to $15.8 trillion in 2021, up 567% from 2020's totals. Hence, illicit activity's share of cryptocurrency transaction volume is actually declining.

"The FATF Recommendations set out a comprehensive and consistent framework of measures which countries should implement in order to combat money laundering and terrorist financing, as well as the financing of proliferation of weapons of mass destruction. Countries have diverse legal, administrative and operational frameworks and different financial systems, and so cannot all take identical measures to counter these threats."

Rostec, a state-owned defense conglomerate headquartered in Moscow, announced that it has developed a blockchain platform that can be used for international settlements. Named the CELLS industrial blockchain, it is Russia's purported replacement for the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging system. The platform will allow for settlements in national currencies and allow Russia to circumvent all international sanctions.