The issue of crypto funding the notorious fentanyl trade has surged into the spotlight, triggering serious conversations at the highest levels of government. Elizabeth Warren, the seasoned US Senator from Massachusetts, has been at the forefront of this discussion.
Warren brought attention to the dire issue during a recent Senate hearing. Consequently, underscoring the urgency of implementing legislation to disrupt this grim pipeline.
Elizabeth Warren Wants to Shutdown Crypto
In the Senate Banking Committee, Warren leaned on compelling data. According to the findings, over 90 Chinese enterprises have been implicated in producing fentanyl precursors. Most of which are facilitating transactions through crypto.
Cryptocurrency has positioned itself as the preferred medium of exchange for organized crime groups. Particularly those operating from China and involved in the fentanyl trade.
The allure of crypto lies in its ability for instant transactions anywhere in the world, often under a pseudonym. As a result, this makes tracing the money trail by law enforcement agencies a significant challenge.
Elizabeth Rosenberg, the assistant secretary for terrorist financing and financial crimes at the US Treasury Department, testified during the hearing, expressing her concerns.
“Unfortunately, that is a mode that some of these precursor manufacturers and illicit drug organizations have used – the receipt of bitcoin payments in wallets, cryptocurrency wallets,” Rosenberg pointed out.
Additionally, Rosenberg explained the appeal, noting:
“The reason why they would find this appealing is the same reason that other financial criminals would find it appealing, which is to say there’s an element of pseudonymity that they seek.”
The Statistics Around Fentanyl Are Alarming
According to the Centers for Disease Control and Prevention, since 1999, the US has seen nearly one million drug overdose-related deaths, with 82% involving synthetic substances like fentanyl. Between 2019 and 2021 alone, an estimated 196 Americans fatally overdosed on fentanyl daily.
The potency of fentanyl, over 50 times more powerful than heroin, makes it the leading cause of death among adults aged 18 to 49. Moreover, the ease with which fentanyl can be mixed with other narcotics like heroin, cocaine, or methamphetamine leads unsuspecting victims to ingest it unknowingly.
China has emerged as the principal supplier of the precursor chemicals required to manufacture synthetic opioids. Blockchain analysis firm Chainalysis found that alleged Chinese suppliers have received crypto assets worth over $37.8 million since 2018.
Several fentanyl traffickers from Mexico’s Sinaloa Cartel, including some of El Chapo’s children and their China-based chemical suppliers, have been sanctioned for knowingly shipping fentanyl precursor chemicals that ended up in cartel hands. Both companies accepted Bitcoin in exchange for their products.
To counter this crisis, Senator Warren suggested that her Digital Asset Anti-Money Laundering Act could be a potential solution. It may help sever the crypto payments fueling the fentanyl trade. The bill is set to be reintroduced into Congress.
“Crypto is helping fund the fentanyl trade, and we have the power to shut that down. It’s time,” Warren declared.
The Digital Asset Anti-Money Laundering Act
Senators Elizabeth Warren and Roger Marshall introduced the Digital Asset Anti-Money Laundering Act as bipartisan legislation. The bill aims to mitigate the risks posed by cryptocurrency and other digital assets to national security.
Moreover, the act intends to close loopholes in the existing anti-money laundering (AML) and countering the financing of terrorism (CFT) rules. It also brings the crypton market into greater compliance with the rules governing the rest of the financial system.
The main points of the Digital Asset Anti-Money Laundering Act are:
- Extend Bank Secrecy Act (BSA) responsibilities to digital asset wallet providers, miners, validators, and other network participants. This would include Know-Your-Customer requirements and designate these actors as money service businesses (MSBs).
- Address a major gap concerning “unhosted” digital wallets, allowing individuals to bypass AML and sanctions checks. It will direct FinCEN to finalize and implement its December 2020 proposed rule. This would require banks and MSBs to verify customer and counterparty identities, keep records, and file reports about certain digital asset transactions involving unhosted wallets or wallets hosted in non-BSA-compliant jurisdictions.
- Prohibit financial institutions from using or transacting with digital asset mixers and other anonymity-enhancing technologies. In addition to handling, using, or transacting with digital assets anonymized using these technologies.
- Strengthen enforcement of BSA compliance by directing the Treasury Department to establish an AML/CFT compliance examination and review process for MSBs. Consequently, directing the Securities and Exchange Commission and Commodity Futures Trading Commission to establish AML/CFT compliance and review processes.
- Extend BSA rules regarding reporting of foreign bank accounts. It aims to include digital assets by requiring US persons engaged in a transaction with a value greater than $10,000 through one or more offshore accounts to file a Report of Foreign Bank and Financial Accounts (FBAR) with the Internal Revenue Service.
- Finally, it aims to mitigate the illicit finance risks of digital asset ATMs. The goal is to ensure owners and administrators regularly submit and update the physical addresses of the ATMs and verify customer identity.
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