🇺🇸 U.S. Department of the Treasury
On April 6th, the U.S. Department of the Treasury published a report on illicit finance risk assessment conducted on DeFi.
The report starts off by explaining key terminology and aspects of the virtual asset market such as technical elements used in DeFi, types of DeFi services and intrinsic characteristics and levels of decentralization of DeFi services.
It carries on by listing facets of DeFi that attract criminals to support their activities:
- DeFi services that aid Money Laundering techniques:
- DEXs and Cross-Chain Bridges
- Liquidity Pools
- Move funds obtained from Ransomware attacks:
- Steal funds by exploiting:
- vulnerabilities of smart contracts
- low-security levels used by companies and individuals
- DeFi services proved to be lucrative in committing Fraud
- Laundering proceeds from Drug Trafficking
- Exploiting DeFi services to sustain a flow of funds destined for financing the acquisition and development of weapons of mass destruction
DeFi services are found to be vulnerable to criminal use mainly because a link between the individual using them and the virtual asset transactional activity cannot be made. Reasons for this are:
- DeFi services are not obliged entities due to their technical nature and AML/CFT regulations do not apply to them, thus users cannot be KYC’ed.
- Direct peer-to-peer transactions are possible as there is no need for an intermediary due to the lack of a need for an account or custodial relationship.
- Some DeFi services fall under FATF’s definition of a VASP. Jurisdictions with gaps in their AML/CFT regime are a safe heaven for such DeFi services which have no intent to abide by AML law. Topped with the cross-border and almost instantaneous nature of VA transactions some of such services are structure from the get-go as a front for money laundering or service created to assists criminals.
- Some DeFi services are prone to fall victim of cyber-attacks due to the lack of requirements for cybersecurity and audits in the DeFi space.
A set of Mitigating measure for the identified vulnerabilities are laid out surrounding:
- Regulatory Frameworks
- Public Blockchain Transparency
- Use of Centralized VASPs as On- and Off-Ramps
- Other Potential Industry Solutions
🇦🇺 Australian Supervisory Authority revokes Binance’s license
In Australia, Binance faced a targeted review conducted by the Australian Securities and Investment Commission (ASIC) which resulted in its financial services license for derivatives being withdrawn on April 6th as related by the Authority.
ASIC opened the investigation into Binance’s local financial services business and discovered that some retail investors were misclassified as wholesale. Oztures Trading Pty Ltd is the legal entity trading as Binance Australia Derivatives. On April 5th the Authority received a license cancel request from the entity which was accepted and will come into effect on April 14th 2023. As a result, “clients will not be able to increase derivatives positions or open new positions with Binance; Binance will require clients to close any existing derivative positions before 21 April 2023; on 21 April 2023, Binance will close any remaining open positions.”