Tim Scott: Hard To Launder Funds With Crypto Because Of Its 'Permanent, Traceable Ledger'

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During a Senate Banking Committee hearing on Wednesday, Sen. Tim Scott (R-SC) asked PERSON about TOPIC.

Transcript

00:00Ms. Mersinger, digital assets and blockchain technology could democratize finance, giving

00:09every American, no matter the background, access to financial services at lower costs

00:14with greater speed than ever before.

00:17To achieve this revolutionary potential, there is widespread agreement, from industry leaders

00:22to the president and bipartisan members of Congress, that we must provide clear rules

00:26that foster innovation and protect investors.

00:31Listening to you and, frankly, Mr. Levin as well, I think Mr. Levin said we need a fundamentally

00:36new model because we're talking about, frankly, a fundamentally new world.

00:40It's not new today, but it's new to those of us who are going to pass legislation.

00:45You talked about the importance of the existing laws as we see them are inadequate and, frankly,

00:51not applicable to this new opportunity to be the crypto capital of the world.

00:56From your perspective, why is regulatory clarity so important and what are the risks if we

01:03fail to provide certainty for innovators and everyday Americans?

01:07Thank you for that question, Senator.

01:11Traditional bank regulations are not fit for purpose for digital assets and blockchain technology.

01:21Those regulations are meant for centralized intermediaries.

01:26And that's not what we're dealing with here.

01:29We need a regulatory structure that is fit for purpose.

01:35Otherwise, this patchwork of regulations and state laws and the industry trying to piece

01:41together what is their regulatory framework doesn't work.

01:47And it's going to push and continue to push innovators offshore.

01:52The most important thing we can do is create a framework that gives clarity.

01:58The status quo doesn't work.

02:00We need to be able to have responsible innovation here in the United States.

02:05We need a framework that provides customer protections.

02:09And we also need to make sure that whatever framework we put in place, that it ensures that

02:16U.S. American values are what this new framework or what this new technology is based on.

02:25Thank you very much.

02:26Mr. Levin, there's a common belief that money laundering is easy with crypto.

02:31But the truth is, it's not.

02:33Blockchain technology creates a permanent traceable ledger that can help law enforcement catch

02:38those bad actors.

02:39I've said it before, so I'll say it again.

02:41It's far easier to track something that has a digital footprint than something that does

02:46not.

02:47However, some of my well-intentioned colleagues seem to think that crypto is tailor-made for

02:51money laundering, when in reality, it's a whole lot easier for criminals to hide their

02:56tracks with cash.

02:58What are the most common misconceptions regarding the role of digital assets in illicit finance?

03:03And what rules do digital asset market participants already comply with in this space?

03:08You talked about, I think it was a couple hundred million dollars that had already been seized

03:13by working together.

03:14I think the more we illuminate how the industry is already working with law enforcement, the

03:20better we understand the digital footprint versus cash.

03:24Thank you for the question, Senator.

03:28The way that we see this market is that the majority of activity inside cryptocurrencies and

03:35on blockchains is legitimate activity.

03:38There are trillions of dollars of payments that are made using stable coins every year.

03:44A lot of that, the vast majority of that, is not illicit activity.

03:49The illicit activity that we estimate at Chainalysis is less than 1% of the overall activity that

03:55occurs on these blockchains, which is equivalent to what we see in traditional markets and, in fact,

04:01oftentimes less than what we see in traditional markets.

04:04And so criminals themselves and gangs and whoever else we're dealing with understand that it's

04:11not possible to launder vast sums of money in these networks and that the majority of the

04:17activity is legitimate.

04:19We do see, though, that when it comes to threats, for example, with fentanyl or pig butchering or

04:26terrorist financing, the industry comes together with law enforcement to collaborate on solving

04:30these cases.

04:32And we at Chainalysis have powered thousands of investigations that have spanned international

04:37geographies across national boundaries to be able to actually capture criminal proceeds

04:43in these investigations.

04:45The centralized services that have been helpful with this are subject to the AML and BSA obligations

04:51and have been from FinCEN guidance in 2013 and so have a very deep experience in actually

04:58helping law enforcement in these instances.

05:00And it's through that public-private collaboration that we can actually solve the problems of illicit

05:05finance.

05:06Thank you very much.

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