The UK’s national law enforcement agency wants more stringent regulation for crypto protocols that enable transaction activity to be hidden.
According to the National Crime Agency, decentralized mixers like Wasabi Wallet and Tornado Cash utilize smart contracts to obscure transactions between sender and receiver. Regulations the agency has called for include know-your-customer compliance, and recording audit trails of any coins passing through these platforms. While the enhanced privacy has inherently appeals to crypto advocates, authorities believe the risk for potential illicit use outweighs any such benefit.
“When it comes to crypto transactions, the owner’s identity is already obscured, and the reality is that prying eyes would need additional, hard-to-get information, to determine a wallet’s balance and its owner,” said Gary Cathcart, head of financial investigations at the NCA. “The argument on privacy is therefore a weak one.”
He believes that stronger regulation would indicate greater legitimacy for cryptocurrencies to consumers. Clearer rules would also facilitate the procurement of court orders by law enforcement for investigative purposes, he said. Cathcart added that this would be especially helpful for authorities to distinguish between mixers being used for privacy and those potentially being used to enable serious criminal activity. Earlier this month, the UK’s Financial Conduct Authority initiated 50 investigations into cryptocurrency business operators, in order to stem a surge in scams.
Greater crypto adoption
Governments and regulators have grown especially concerned that these platforms could be increasingly used by Russians seeking to evade sanctions. Cryptocurrencies have proven to be a lifeline for both Ukrainians and Russian, whose financial systems have been seriously compromised by the invasion and the ensuing sanctions, respectively.
“The overall volume of crypto-related money laundering is still low when compared to the wider economy,” said Cathcart. “The threat lies with the exponential adoption of cryptocurrencies, and the criminal activity that we will inevitably encounter through that.”
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