GAO Report Indicates Upcoming Tighter Crypto ATM Regulations | Troutman pepper
In a January 10 report Titled “Virtual Currencies: Additional Information Could Improve Federal Agency’s Efforts to Combat Human and Drug Trafficking”, the Government Accountability Office (GAO) identified virtual currency kiosks as one of the reasons for the increase in the use of crypto payments to facilitate illegal activities, such as human and drug trafficking. According to the report, virtual currency kiosks are less regulated than crypto exchanges and transactions are harder to trace. The GAO believes that the Internal Revenue Service (IRS) and the Financial Crimes Enforcement Network (FinCEN) should do more to regulate crypto automated banking machines (ATMs), and its report says the agencies have accepted its two recommendations to strengthen their regulations.
The GAO report details how federal agencies — including the U.S. Postal Service (USPS), Immigration and Customs Enforcement (ICE), and the IRS — are tackling rising crime they say is facilitated by payments made using virtual currencies. He also noted that a lack of information about crypto kiosks or crypto ATMs hampered law enforcement’s ability to shut down criminal activity.
The GAO’s primary concern with crypto ATMs is that while operators must register with FinCEN, they are not required to regularly update law enforcement on the location of the kiosk, which “limits the ability of federal agencies to identify kiosks in areas that have been designated as high risk for financial crimes. In his view, the growing regulation of crypto kiosks will allow law enforcement to obtain better information, which will enable them to identify “potentially illicit transactions.”
To improve crypto kiosk regulation, the GAO recommended, and the IRS and FinCEN agreed, that the FinCEN Director and the IRS Commissioner should: money services (ESM) for crypto ATMs and other exchanges; and (2) create additional requirements for crypto kiosk operators to regularly update law enforcement on physical kiosk addresses.
The GAO survey determined that: (1) 36% of ICE’s crypto-related investigations involved drug trafficking; (2) 25% of IRS crypto investigations were drug-related; and (3) 85% of USPS crypto seizures were for drug trafficking. According to the GAO report, international criminal organizations are “increasingly using virtual currency due to its perceived anonymity and as a more efficient method of moving money across international borders,” allowing the money to cross borders without attracting the attention of law enforcement. The GAO has attributed the growing popularity of cryptocurrency money laundering to less regulated crypto ATMs, which allow for increased anonymity. “Money couriers deposit large volumes of cash from illegal drug proceeds into a kiosk to convert the value into virtual currency,” the report said. “Once the illicit proceeds are in this form, the funds can easily be transferred to another virtual currency user’s wallet, reducing the risk associated with carrying bulk currency.”