The U.S. Justice Department will take the lead on drafting up a “comprehensive strategy” for cryptocurrencies, according to Deputy Attorney General Rod Rosenstein. But the path forward won’t be easy as regulators play catch up to dark web criminals using cryptocurrencies to launder money.
Rosenstein expressed the DOJ’s position at the Financial Services Roundtable in Washington over the weekend, where the subject of cryptocurrency was brought up during the question-and-answer period.
Cryptocurrency “is a new challenge” because it does not “flow through the traditional financial system,” Rosenstein said. Magnifying the issue is the encryption techniques cryptocurrencies employ to obscure the origin of the funds. Depending on which coin you use, tracing where the money came from is extremely difficult.
“What we’re working on now with our cyber crime task force is a working on a comprehensive strategy to deal with that,” he added.
The task force will be made up of representatives from several law enforcement agencies, including the FBI and Drug Enforcement Agency.
Although government agencies appear to be ramping up their fight against crypto-based cyber crime, Rosenstein urged banks to step up their anti-money laundering efforts.
Rosenstein, a 30-year veteran of the DOJ, also brought attention to the evolving threat of cyber crime, and urged consumers to use several types of identification when making purchases online.
Strategy Does Not Equal Regulation
It remains unclear whether this new strategy will lead to new market regulations in the future. Earlier this month, a top White House official indicated that the Trump administration was no closer to adopting a comprehensive plan for regulating digital currencies.
White House cyber security coordinator Rob Joyce said regulators must first wrap their heads around cryptocurrency before they decide to regulate it. In his view, this could be a long ways off.
“I think we’re still absolutely studying and understanding what the good ideas and bad ideas in that space are,” Joyce told CNBC at the Munch Security Conference in Germany. “So, I don’t think it’s close.”
U.S. commodity and securities regulators have a limited mandate to regulate cryptocurrencies. The Commodity Futures Trading Commission (CFTC) has investigative powers, but no jurisdiction over domestic exchanges, which operate at the state level. Meanwhile, the Securities and Exchange Commission (SEC) has taken special interest in ICOs, but has made no mention of overarching regulation for the digital currency class.
Criminals Favor Cryptocurrency
Criminals have been quick to embrace the enhanced privacy features offered by cryptocurrencies. According to a recent report, digital currencies such as Litecoin, Ethereum and even Dash are growing in prominence on the dark web. Although bitcoin remains the number one cryptocurrency embraced by cyber criminals, Litecoin has experienced a spike in popularity due to better transaction speeds.
So-called privacy coins offer even better masking techniques, with the likes of Zcash and Monero growing in popularity. Both currencies are said to offer more enhanced privacy and encryption features.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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