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Human trafficking is becoming the major challenge to resolve in the United States and a Premier Advisory Firm, Financial Integrity Network (FIN) finds that the human traffickers at a small level human trafficking organizations are using cryptocurrencies. To combat human trafficking, the agency seeks US Govt to consider a new class and regulate crypto sector under the Bank Secrecy Act
Crypto in Human Trafficking
On Sept 3, 2019, David Murray, Vice President Financial Integrity Network (FIN) will present his testimony on ‘Human Trafficking and its Intersection With the Financial System’ in front of the U.S. Senate Committee on Banking, Housing, and Urban Affairs’ subcommittee on National Security and International Trade and Finance.
As the testimony reveals various aspects revolves around human trafficking and how it often interacts with the financial system. He mentions that human traffickers at lower levels of the organization have used cryptocurrencies besides retail payment systems, cash, online payment systems. The testimony elaborates that the financial system involved in human trafficking lacks transparency. By referring to cryptocurrencies and other online payments that used at a lower level of human trafficking organizations, he said that the “human trafficking dwells in parts of our financial system where transparency may be poor”.
As cryptocurrency is decentralized in nature and doesn’t require any central authority, he feels that lawmakers should strengthen the crypto regulations. On behalf of the Financial Integrity Network (FIN), a premier strategic advisory firm that helps clients maintain financial integrity, Murray recommends a new class of financial institution. He mentions the country needs virtual asset transaction validator to track the transactions performed by human traffickers.
For these essential actors in cryptocurrency transactions, such a regulatory regime would emphasize counterparty financial institution due diligence, Murray writes in Testimony. The lack of systemwide 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.
Govt Should Strengthen Crypto Regulations
In detailed testimony, Murray further cites FATF and states that “human trafficking for sexual exploitation generates high volumes of cash”. He says that the traffickers seek to remain anonymous and not just that, but the purchasers of sex may also use cryptocurrencies.
On a serious note, the agency recommends congress to create a new class of financial institutions under the regime of the Bank Secrecy Act (BSA) to govern the cryptocurrency service providers. The new class, Virtual Assert Service Providers (VASPs) according to FIN agency are those virtual currency firms that are already covered by the BSA and also those that are not regulated at all.
Even for those VASPs currently regulated as money transmitters, the regulations are insufficient to protect virtual assets from exploitation.
They assert that the Bitcoin and other cryptocurrencies as convertible virtual currencies are becoming the vulnerable assets to illicit finance. According to a study report referred by the agency, illicit Bitcoin transactions are on a pace to top $1 billion this year. Following the consequences by Bitcoin and crypto industry in general, Murray adds; VASPs should be regulated based on the particular service or services that they provide. While Murray mentions how worst bad actors are using cryptocurrencies, he didn’t recommend or discourage crypto sector. Rather, according to Murray, the county should strengthen the crypto regulations to prevent bad actors from establishing VASPs.
The agency further suggests that the strengthening crypto regulations, banning anonymous companies and enhancing transparency of retail and other payment methods can protect the financial system and eventually help country combat human trafficking.
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