How Crypto Affects Government Services

🚨 Last week the US Government Accountability Office issued a report on crypto and economic sanctions. The report, for which I was interviewed, took a relatively balanced approach asserting that, "Digital assets . . . pose risks to implementing and enforcing U.S. sanctions, but several factors partially mitigate these risks. A key feature of digital assets is that they enable users to rapidly transfer value across countries’ borders. Yet many digital assets are recorded on a public ledger, which may enable U.S. agencies and analytics firms to trace transactions and potentially identify illicit actors." The report examines (1) the risks that digital assets pose to U.S. agencies’ ability to implement and enforce U.S. sanctions and factors that may mitigate those risks, and (2) actions that U.S. agencies have taken to address the risks that digital assets present with regard to implementing and enforcing U.S. sanctions. Key Findings: 🔑 Illicit actors still need on and off ramps to convert digital assets to more usable fiat currencies. Therefore, efforts to increase global compliance standards are important. 🔑 An increase in the use of digital assets could erode the potency of U.S. sanctions and lead to greater sanctions evasion. On the other hand, advancements in capabilities to trace transactions and identify illicit actors could mitigate some sanctions evasion risks. 🔑 GAO found that agencies have taken various actions to address the risks posed by digital assets to U.S. sanctions implementation. For example, Treasury has sanctioned, and DOJ and other agencies have taken enforcement actions against, entities and individuals for facilitating sanctions evasion with digital assets. 🔑 International collaboration is critical given the cross border nature of crypto. 🔑 The report focuses on the ability to trace and track transaction to investigate sanctions evasion. Specifically, GAO cites TRM Labs Illicit Crypto Ecosystem report to assert that: "While digital assets can provide actors a level of anonymity in their financial transactions, many are not completely anonymous because their transactions are recorded on a blockchain. As a result, these transactions can be connected to real world identities. Stakeholders and a DOJ report have highlighted how the public, immutable nature of blockchain ledgers facilitates tracking and tracing and can enhance law enforcement’s efforts. In contrast, tracking and tracing are not always available for transactions using fiat currency, according to a DOJ report. Blockchain analytics firm TRM Labs’ Illicit Crypto Ecosystem Report also highlighted the tracing capabilities blockchains afford and indicated that the transparent and traceable nature of digital asset transactions facilitates the systematic measurement of illicit activity. Therefore, public blockchains could provide insights into criminal networks and typologies." 📑 Read the full report here: https://lnkd.in/e_P_UEUG

Rebuilding trust in governments through cryptocurrencies: the USA, Iran, and Israel In early August, the US and Iran conducted a prisoner swap in which five imprisoned Americans were returned for several jailed Iranians and $6 billion of frozen Iranian assets. Given the association between Iran and Hamas, many have reasonably asked: did that $6 billion fund today's horrific terrorist attacks on Israel? According to the New York Times, these assets were placed "into an account in the central bank of Qatar... controlled by the government of Qatar and regulated so Iran can gain access to the money only to pay vendors for humanitarian purchases such as medicine and food." [1] This claim has been echoed multiple times by US officials, including White House National Security Council Spokesperson Adrienne Watson and Under Secretary for Terrorism and Financial Intelligence Brian Nelson. In the current partisan political climate, Republicans have accused the Biden administration of indirectly funding terrorism. However, it is not just the political right doubting the official narrative. Many on Twitter, responding to official statements, have expressed skepticism since there is no way to independently verify these claims. How can we confirm with our own eyes: 1) That the $6 billion in the Qatari central bank remains unspent? 2) That any spending is exclusively for humanitarian needs? The answer is that we cannot. This information is opaque and inaccessible. We are left only with our trust in the words of public officials, invariably influenced by our own political biases and proclivities. Of course, the technology exists to solve this problem: cryptocurrencies and the public blockchain. Public blockchains allow for the transparent monitoring of fund movements, so that anybody can verify the balance of any account. Furthermore, through cryptographic signature attestations, transfers can be verified between specific parties. This can be set in a smart contract, audited, made open-source, and publicly viewable. This is a perfect use case for cryptocurrencies. Unsubstantiated arguments always have the potential to devolve into tribal conflicts. In contrast, the mathematical inviolability of cryptocurrencies provide objective verification. They obviate the need for third parties to make unilateral and unverifiable claims. Survey after survey shows that public trust in institutions is declining. Someone's word simply isn't enough; labelling something as disinformation is insufficient. Those in government who wish to regain the faith of their citizens should strongly consider employing the public blockchain as a tool for demonstrating their honesty and integrity, particularly in times of crisis. [1] https://lnkd.in/g_bmHi2B

"Finally, ensuring effective [crypto asset] policies requires several measures including strong coordination, at the domestic and international level:   • National authorities must align their frameworks to the emerging guidelines, and standards being developed by standard setting bodies. This alignment is critical to achieve consistent treatment of crypto assets and may require legislative changes.   • Developing strong supervisory capacity is vital for monitoring and enforcing rules effectively. Authorities must have the necessary skills and resources to oversee the evolving crypto asset landscape.   • Given the borderless nature of the crypto-assets ecosystem, international collaboration and information sharing are crucial. Cooperation among supervisors and competent authorities will enable the monitoring of crypto asset service providers and maintain the efficacy of regulatory policies.   • Going beyond crypto polices, public authorities should take advantage in the progress in digital technology to enhance public policy objectives and must actively collaborate to address ongoing cost, trust, and speed issues, particularly for cross-border payments. New multilateral platforms could improve the efficiency of transactions."   — From: Tobias Adrian, Dong He, Arif Ismail, Marina Moretti, Crypto Needs Comprehensive Policies to Protect Economies and Investors, July 18, 2023 https://lnkd.in/d_eysYU8