The Financial Integrity Network (FIN) has urged the United States Congress to regulate cryptocurrency firms under the Bank Secrecy Act (BSA), which would make it difficult for some existing implementations of blockchain-based payments to continue operating in their current manner. The Washington D.C.-based advisory firm made the claim in their testimony which was published before a hearing on human trafficking and its relation to the financial system.
Regulations to be Strengthened
Among the recommendations to restrict traffickers’ activities is to “strengthen cryptocurrency regulations by creating a new class of financial institution”, as the current system doesn’t do enough to prevent cryptocurrencies being used for such purposes:
The lack of system-wide financial crimes compliance (FCC) governance for some existing cryptocurrencies allows criminals space to operate and makes it difficult for the United States to isolate rogue service providers from the U.S. financial system.
However, they also note that cryptocurrencies are currently the less favored option, saying that “purchasers of sex tend to pay in cash, which means that human trafficking for sexual exploitation generates high volumes of cash…” , although the do add that cryptocurrencies are more frequently used “to pay for premium memberships on websites that they use to review services.”
Building a Nest of VASPs
The chief way in which Congress can counter the growing use of cryptocurrencies in human trafficking is, according to FIN, to utilize the BSA in creating a new class of financial institution – the virtual asset service providers (VASP):
…(VASPS) are firms involved in convertible virtual currency transactions. VASPs should include cryptocurrency service providers that are already covered by the BSA as well as virtual asset services that currently fall outside the scope of the BSA.
As with all regulations however, innocent cryptocurrency users will be caught up in any tightening of the rules, and in this case legitimate companies, which make up the vast majority, will be penalized:
Imposing regulations on people and entities who perform these functions almost certainly would make it difficult for some existing implementations of blockchain-based payments to continue operating as they do today.
Crypto companies trying to work within the established legal frameworks, which at times seems like trying to build a castle on shifting sands, will not be thrilled to hear these suggestions, in the knowledge that if they are taken up it will resemble a step backwards in the fight to legitimize cryptocurrency and will put an extra burden on their accounting and reporting systems, so much so that it may send smaller firms under.