US Treasury Strategy Strengthens Virtual Property Regulations, Increases Use of AI

The US Treasury Department has released a biennial National Strategy to Combat Terrorist and Other Illicit Financing. It contains four priority recommendations that can affect virtual assets in different ways.

Treasury's strategy acknowledges that law enforcement agencies are scrambling to develop financial technology. The first two Treasury priorities are to address regulatory gaps in Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) and to create a more focused and effective regulatory framework. The Treasury said it will “assess the need for further action in areas not subject to the general AML/CFT measures”.

Performance enhancement is also on the agenda. The strategy said:

“The explosion of new payment channels and financial service providers, including VASPs [virtual asset service providers]Over the past decade, they have stretched thin the limited regulatory resources historically applied to traditional MSBs. [money service businesses]He said.

A new emphasis on blockchain technology is part of the strategy. For example, “There is a Federal Bureau of Investigation Virtual Assets Unit that provides technology tools, blockchain analysis and virtual asset seizure training, and other advanced virtual assets training to FBI employees.

Finally, the Treasury seeks to “responsible technology innovation and use of technology to address illegitimate financial risks” through various measures. It advocates increasing inclusion in the financial system and combating deregulation — the practice of denying all courier services to small banks in areas with high levels of illegal activity. Derisking has serious consequences for users of legitimate banking services and encourages the use of crypto-based payment and remittance solutions that are not dependent on banks.

Related: US Treasury official urges Congress to give more power to crypto crime

The strategy includes creating better cross-border payment systems and remittance options on regulation. He pointed out that the G20 Roadmap and Fed Now's domestic transfer system are good implementations of this approach.

Artificial intelligence and digital identity can play a major role in the strategy's success:

“We provide regulatory and policy support for secure digital identity solutions and […] US government efforts to expand the use of artificial intelligence (AI) and data analysis […] Advance US technology leadership in payments that reflect US standards, practices and values.

AI can be used to enhance government regulatory and enforcement efforts, but it can also be used by illegitimate users of the financial system in the same way, the strategy said.

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