The U.S. Treasury Department has recently released an assessment of the risks posed by decentralized finance (DeFi) services. In its report, the department warns of criminal activities such as money laundering and terrorist financing that can be facilitated with DeFi technology. The Treasury has called for an assessment of possible enhancements to U.S. anti-money laundering and counter-terrorism financing requirements as they should be applied to DeFi services.

The report shows that DeFi services mostly lack the necessary AML/CFT controls needed to identify customers and how the money moves through the system. This makes money laundering and terrorist financing particularly easy. The department has reiterated the need for better AML/CFT compliance checks for DeFi services.

Furthermore, the report states that many DeFi projects have actually endorsed a lack of AML/CFT controls in the name of decentralization, for example ShapeShift. This is worrying as when these entities fail to follow AML/CFT policies, criminals are able to successfully exploit the system to bypass international and UN sanctions.

The report is part of President Joe Biden's executive order issued last year that aims to discourage malicious activities related to cryptocurrency. Other jurisdictions around the world are also enacting regulations that tackle money laundering risks associated with DeFi.

This assessment from the Treasury Department is a significant step in helping to protect crypto from becoming a major platform for criminal activities. It highlights the importance of regulatory oversight over DeFi services for them to be securely used for the public. The Treasury's findings should inform relevant businesses of the potential dangers and motivate them to ensure better security measures in their DeFi services.



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