On 26 Jan 2022, Senator Dianne Feinstein (D-Calif.) requested information from the Department of the Treasury and the Internal Revenue Service (IRS) about how the agencies are tracking the use of digital currencies for human and drug trafficking. The request follows the Government Accountability Office (GAO) report, "Virtual Currencies: Additional Information Could Improve Federal Agency Efforts to Counter Human and Drug Trafficking," GAO-22-105462, 8 Dec 2021, Highlights (1 page), Full report (84 pages). Senator Feinstein requested:
Please describe the steps your agencies are currently taking, or planning to take, to implement GAO’s recommendations to better capture data on the use of digital currencies to facilitate drug and human trafficking
Please outline other actions you are considering taking—on your own or in cooperation with other agencies—to improve the tracking, sharing, and use of information regarding the use of digital currencies in human and drug trafficking and other illicit activities
Do you require any additional legislative authorities to implement GAO’s recommendations or to take other actions you are taking or considering taking in this area?”
GAO-22-105462 Summary
Jill Steinberg & Siana Danch’s article, “GAO Publishes Report on Nexus Between Virtual Currencies and Human and Drug Trafficking Financing,” Ballard Spahr - Money Laundering News, 25 Jan 2022, is an excellent review of the report’s background, including:
Information underlying the report
Findings on virtual currencies and specifically virtual currency kiosks
Findings on sex trafficking
Findings on drug trafficking
Report’s recommendations
The article’s Take Away: Clearly, the U.S. government is very focused on the prospect that criminals may use cryptocurrencies to facilitate illicit transactions. Accordingly, the Report’s recommendation for more oversight and data collection regarding virtual currency (VC) kiosks strongly aligns with the Financial Crimes Enforcement Network’s (FinCEN) proposed regulations related to virtual currency exchanges under the proposed amendments to the Travel Rule and the proposed creation of a rule for unhosted wallets. One clear take-away from the Report for any (Money Service Business) MSB, and for any financial institution servicing a MSB, is to evaluate the sufficiency of its existing Anti Money Laundering (AML) transaction monitoring process and its ability to flag indicators of transactions involving human and drug trafficking – particularly if the MSB transacts in cryptocurrency.
FinCEN HT SAR Statistics for the MSB Industry
FinCEN Human Trafficking (HT) Suspicious Activity Report (SAR) statistics, 2014-2021, all industries, show a total of 10,749 SARs for HT (none earlier than Jul 2018). For the MSB industry, there are a total of 3,198 HT SARs (2021: 1,791; 2020: 760; 2019: 599; 2018: 48). There are MSB national and state interactive maps for 2017 and 2018.