Crypto & Digital Assets: Treasury & DOJ Report Recommendations

A look at recommendations to inform future policies, including consumer/investor protections, financial crimes, and national security

September 2022

KPMG Insights.  As directed by the Administration, Treasury and DOJ have prepared reports that examine certain aspects of the crypto and digital assets markets for the purposes of informing future policies. As issued, the reports confirm known regulatory risk areas of concern, including payments activities, consumer/investor protection, financial crimes, national security, and cross-border/international applications as well as again recommend that regulatory and law enforcement agencies continue to use their existing authority to address current and emerging risks.



The Department of the Treasury (Treasury) and the Department of Justice (DOJ) have each released reports on crypto and digital assets pursuant to the March 2022 Executive Order 14067 on “Ensuring Responsible Development of Digital Assets.” Each report looks at a specific aspect of the developing crypto and digital assets markets and offers recommendations for action. At a high level, the recommendations across the reports encourage:

  • Further study on possible implementation of a U.S. central bank digital currency
  • Regulatory agencies to use their existing authorities to address current and emerging risks, even as market regulation evolves
  • Regulatory and law enforcement agencies to aggressively pursue investigations and enforcement actions against illicit actors and unfair or deceptive practices
  • Efforts to establish supervisory and regulatory consistency across regulatory agencies, international jurisdictions, and digital assets products and services providers

The Treasury and DOJ reports include:

  1. The Future of Money and Payments
  2. Implications for Consumers, Investors, and Businesses
  3. Action Plan for Illicit Financing Risks
  4. The Role of Law Enforcement in Activity Related to Digital Assets

In response to these reports and others required by the Executive Order, the White House released a fact sheet outlining a “Comprehensive Framework for Responsible Development of Digital Assets,” highlighting key points drawn from the reports as well as the Administration’s acknowledgement of and intended plans to address crypto and digital assets based on the recommendations.


A summary table of the four reports and recommendations follows.

Report Name

Scope

Key Recommendations

The Future of Money and Payments (Treasury)

Outlines key design choices for a potential U.S. central bank digital currency (CBDC), associated public policy considerations, and recommendations to promote financial innovation in money and payments, while managing related risks.

  • Advance work on a U.S. CBDC
  • Encourage use of instant payment systems
  • Establish a federal framework for nonbank payments regulation
  • Prioritize efforts to improve cross-border payments

Crypto-Assets: Implications for Consumers, Investors, and Businesses (Treasury)

Provides an overview of crypto-assets, entities that provide related services or products, and detail on market size, trends, and uses. The report outlines crypto-asset opportunities, risks, and exposures and offers recommendations to protect and inform consumers, investors, and businesses.

  • Monitor for unlawful activity, pursue investigations, and enforce applicable laws
  • Use existing supervisory and regulatory authority to issue supervisory guidance and rules to address current and emerging risks
  • Promote consumer access to financial education and trustworthy information on crypto assets

Action Plan to Address Illicit Financing Risks (Treasury)

Provides an overview of illicit financing risks, including the threats and vulnerabilities posed by digital assets, as well as government efforts to mitigate these risks and recommendations to continue combatting these risks and strengthening financial safeguards.

  • Monitor the development of the digital assets sector and associated risks
  • Promote effective implementation of global AML/CFT regulatory, supervisory, and enforcement measures
  • Ensure the U.S. AML/CFT regulatory regime can continue to safeguard the U.S. financial system
  • Strengthen U.S. AML/CFT supervision of digital assets and ensure that it evolves in a uniform manner
  • Expose, disrupt, and hold illicit actors accountable
  • Engage with the private sector to ensure understanding of existing obligations and illicit financing risks
  • Promote a modern and evolving domestic payments system
The Role of Law Enforcement in Activity Related to Digital Assets (Department of Justice) Outlines how illicit actors exploit digital assets, the challenges they pose to investigations, initiatives to improve law enforcement efforts, and recommended regulatory and legislative actions to further enhance law enforcement’s ability to address digital asset crimes.

Priority Actions

  • Expanding to VASPs the applicability of laws that prevent employees of financial institutions from tipping off suspects to ongoing investigations
  • Strengthening the law criminalizing the operation of unlicensed money transmitting businesses
  • Extending the statute of limitations of certain statutes to account for the complexities of digital assets investigations

Additional Actions

  • Legislative or regulatory changes or initiatives that would aid investigators in gathering evidence and ensuring a suitable U.S. forum for prosecution
  • Facilitating cryptocurrency forfeiture in appropriate cases and strengthening of the Sentencing Guidelines applicable to certain BSA violations
  • Supporting the proposed FinCEN “Recordkeeping and Travel Rule” that would govern the transfer or transmission of certain digital assets; and clarifying existing laws as necessary to ensure that NFT platforms are subject to the AML/CFT and suspicious-activity-reporting requirements of the BSA
  • Ensuring that law enforcement and regulatory agencies receive the resources required to conduct—and staff—technologically sophisticated and data-driven digital assets-related investigations

 

Related Actions

Treasury Request for Comment. Separately, Treasury put out a request for public comment on illicit finance and national security risks posed by the use of digital assets and the ongoing efforts to mitigate those risks.  Input received is expected to assist in setting controls to hold “bad actors” accountable and to identify potential gaps in existing enforcement.  Comments are requested by November 3, 2022. Questions include those related to:

  • Illicit finance risks
  • AML/CFT regulation and supervision
  • Global implementation of AML/CFT standards
  • Private sector engagement and AML/CFT solutions
  • CBDCs

DOJ Digital Asset Coordinator Network. DOJ also announced the establishment of a nationwide “Digital Asset Coordinator” (DAC) Network within its Criminal Division, comprised of federal prosecutors and subject-matter experts, to support DOJ efforts to combat the threats posed by digital assets.

Contact us

Amy S. Matsuo

Amy S. Matsuo

Regulatory and ESG Insights Leader, KPMG US

+1 919-664-7100
Damian Plioplys

Damian Plioplys

Advisory Managing Director, FS Regulatory & Compliance Risk, KPMG US

+1 212-872-7959