Financial Regulator Says Use of Crypto Helps—not Hurts—Ransomware Investigations

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Senators left and right are using the Colonial Pipeline hack and Russia’s invasion of Ukraine as reasons to both regulate and avoid regulating cryptocurrencies.

Another key U.S. law enforcement official is challenging the notion that greater regulation of the cryptocurrency industry is needed to deter ransomware perpetrators, arguing blockchain technology has, moreover, assisted officials working to track the malicious activity.

“Yes, cryptocurrency has become the recent payment of choice because of the speed and its perceived anonymity,” reads testimony Michael Mosier, deputy director and digital innovation officer for the Financial Crimes Enforcement Network—FinCEN—submitted to the Senate Banking Committee Thursday. “However, payments made in cryptocurrency offer law enforcement significant visibility and investigative benefits over opaque banking, as we saw with the recovery of $2.3 million in cryptocurrency from the Colonial Pipeline attackers.”

Mosier’s comments come as eight Democrats, led by Sen. Elizabeth Warren, D-Mass., introduced a bill to require greater oversight of the industry by the Treasury Department in the wake of financial sanctions for Russia, following its invasion of Ukraine. The senators expressed concerns sanctioned entities will use cryptocurrency exchanges and other components of the digital infrastructure that don’t strictly require standard forms of identification to get around being locked out of the global financial ecosystem.

But Committee Ranking Member Pat Toomey, R-Penn., pointed to recent comments from FBI Director Christopher Wray, Acting FinCEN Director Him Das, and National Security Council Cybersecurity Director Carole House asserting a lack of evidence supporting the use or potential of cryptocurrencies to evade the sanctions. Mosier’s comments went even further, suggesting blockchain technology, which records each transaction in a publicly accessible ledger, enables greater, speedier accountability for various illicit activities. 

“There are many other examples of cases being solved much faster because cryptocurrency was involved,” he said, “cases where we could immediately identify on a public ledger which Virtual Asset Service Provider to subpoena, using immutable public evidence rather than years of Mutual Legal Assistance Treaty process and guesswork about which bank might be involved, due to opaque wire transfers and shell companies.”

Mosier said instead of requiring greater reporting by cryptocurrency asset holders as the new bill does, for example, lawmakers should fund FinCEN and Treasury’s Office of Foreign Assets Control so they can use tools available to analyze and trace transactions on the blockchain during their investigations. 

One provider of such tooling—Chainalysis—was also represented at the hearing by co-founder Johnathan Levin along with the founder of the Ukrainian cryptocurrency exchange Kuna, who celebrated cryptocurrencies for enabling a faster flow of funds from the international community to Ukrainians, as well as Russians who disagree with the war and want to dump the ruble.

But Sen. Mark Warner, D-Va., who is a co-sponsor of the new bill, has also called for cautious regulation of the industry, and said the hearing promoted a false choice on the issue.

“I think there's a little bit of a conundrum here … I am not sure the kind of positing of this as an either-or circumstance is the correct posit,” he said. “This has been a way to move assets to the Ukrainian people in a relatively fast way and I want to commend that. But … I am hugely concerned that because of some of this ease of transferring of assets that has helped the Ukrainian people … that same ease is allowing conversion of fiat currency to crypto to then potentially buying properties in nations around the world that have accepted this.”