US Treasury Sets out International Cooperation Plan to Rein in Digital Assets

The Secretary of the Treasury on Thursday (July 7) delivered to President Biden a report suggesting that more engagement with foreign counterparts and in international organizations is needed if the U.S. wants to make sure that digital assets around the world respect America’s core values and the country contributes to set international standards.

This framework, drafted by the Secretary of the Treasury in consultation with the Secretary of State, the Secretary of Commerce, the Administrator of the U.S. Agency for International Development (USAID) and the heads of other relevant agencies, comes in response to the President’s Executive Order on crypto assets issued in March. The framework focuses on crypto assets, but it also includes central bank digital currencies (CBDCs).

The report stressed the importance of “international cooperation among public authorities, the private sector and other stakeholders” in expanding access to safe financial services.

Given the cross-border nature of these digital assets, the Treasury highlights the risks for households and businesses of not having high regulatory standards and a level playing field not only in the U.S. but also in other countries. “Uneven regulation, supervision, and compliance across jurisdictions creates opportunities for arbitrage and raises risks to financial stability and the protection of consumers, investors, businesses, and markets,” the report said. Additionally, Treasury warns that inadequate anti-money laundering (AML) regulation, supervision and enforcement by other countries may affect U.S. ability to investigate illicit transactions.

The Treasury report outlines the strategy that the U.S. government should adopt to developing and adopting international standards on digital assets, digital payment architectures and CBDCs. For instance, the U.S. should continue to engage with the G7 and G20 on broad issues related to digital payments, CBDCs and their implications for the international monetary system. These groups focus on cross-border payments and financial stability risks.

Second, the US should continue supporting countries in implementing the Financial Action Task Force (FATF) standards for virtual assets and virtual asset service providers. The FATF sets international standards to prevent money laundering, terrorist financing and proliferation financing.

Third, the U.S. should continue working with the OECD to design new global policies and increase its work on standard-setting bodies to “ensure that the US plays a leading role in developing standards.”

Last, the U.S. “will promote the adoption and implementation of international standards through bilateral and regional engagements.” In this last effort, the U.S. influence on the World Bank and other multilateral development banks can help the country to incorporate U.S. values in their activities, Treasury said.

This is not the first time that a federal agency warned the White House about the risks of weak crypto and AML regulatory frameworks in the U.S. and elsewhere and the need for further cooperation. On June 6, the Department of Justice released a report urging the U.S. to strengthen its coordination with other nations to investigate and combat crimes involving digital assets.

The report concluded that despite the steps already taken to combat the illicit use of digital assets, “efforts must evolve to meet the challenge.” The report recommended expanding the U.S. operational and capacity-building efforts with international partners, increasing information sharing and closing regulatory gaps across jurisdictions.

Read more: DOJ Calls for International Cooperation to Fight Crypto Crime

But the need for more interagency cooperation is not limited to international partners. U.S. Senator Gary Peters on June 2 released a report detailing the results of his investigation into the role cryptocurrencies — which according to the report continue to play in emboldening and incentivizing cybercriminals to commit ransomware attacks that pose an increasing national security threat. The report highlighted how despite the efforts taken by many federal regulators to address this raising threat, in particular the Financial Crimes Enforcement Network (FinCEN), the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS), current reporting is fragmented across agencies, and they do not capture, categorize or publicly share information uniformly.

The report recommended that agencies should standardize the data across the federal government to enable more comprehensive information sharing and analysis.

Read also: US Lawmakers Take on Crypto Ransom Payments