Carole House, a former White House director of cybersecurity and secure digital innovation, testified before Congress on Wednesday, February 15, 2024. She asked the House Financial Services Committee that Bitcoin miners could play a pivotal role in combating illicit finance in cryptocurrency ecosystems.
“Engage OFAC about the extent of compliance obligations and enforcement or implementation approach toward ‘network layer’ participants like miners and validators,” House recommended in her testimony.
She explained that prior to pursuing new regulations for Bitcoin miners as financial institutions, it would be prudent to first enforce their existing obligations regarding sanctions screening of transactions.
House has extensive experience in technology policy and digital finance, having served in cybersecurity roles at the White House, Department of Treasury, and on Capitol Hill. She highlighted that while cryptocurrency brings many benefits, it also carries risks that need to be carefully managed.
“The greatest challenges in cryptocurrency illicit finance are largely not policy weaknesses, but instead insufficient implementation of existing obligations, either through failures in compliance or insufficient agency resources and capacity,” House told Congress members.
She noted that miners validate cryptocurrency transactions and therefore have a role to play in stopping prohibited transactions to sanctioned entities. House suggested regulators engage with miners to drive compliance and enforcement of their sanctions screening duties before imposing additional regulations designating them as financial institutions.
The prominent Florida resident emphasized that the transparency of public blockchain ledgers enables detection and monitoring of illicit finance. However, raw data alone is insufficient without proper resources and regulations in place.
Global Cooperation Essential To Combat Crypto Crime
House said that greater international cooperation is also vital, as the U.S. cannot combat cryptocurrency crime alone, given its global nature. Over 75% of jurisdictions are not yet compliant with standards from the Financial Action Task Force (FATF) to address virtual asset risks.
House urged policymakers to direct agencies to accelerate the implementation of FATF standards across priority regions through diplomatic pressure and capacity building. She said the U.S. should leverage its leadership position to drive progress abroad.
“The United States was successful in establishing the policy framework, implementation lags. Now almost five years after the standards were adopted, 75% of jurisdictions are only partly or not compliant with the FATF virtual asset standards,” House testified.
In addition to actions overseas, the Florida expert advised enhancing public-private partnerships and information sharing. She highlighted the Cybersecurity Information Sharing Act’s liability protections that enable industry-wide sharing of cyber threats as a model that could be applied to illicit finance.
House also called for promoting digital identity solutions that avoid importing weaknesses of traditional identity into cryptocurrency systems. She suggested measures like mobile driver’s license standards and remote identity proofing to combat fraud.
Overall, House emphasized the need for prudent steps to secure responsible innovation in cryptocurrency. Her recommendations aim to leverage existing laws while closing gaps that allow illicit use of decentralized systems. With miners on board to screen transactions, regulators can prevent rogue regimes from exploiting digital assets.
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