The Treasury Department is seeking public input on how to address illicit finance and national security risks posed by digital assets, part of a multipronged push by the Biden administration to hold bad actors accountable and identify potential enforcement and regulatory gaps.

On Tuesday, the Treasury published a request for comment in the Federal Register seeking feedback on “digital-asset-related illicit finance and national security risks as well as the publicly released action plan to mitigate the risks.” The comment period will be open through Nov. 3.

The request follows an executive order by President Joe Biden in March noting digital assets pose potential risks to “financial stability and financial system integrity, combating and preventing crime and illicit finance, and national security.” Biden urged government agencies to explore how to encourage “responsible financial innovation” in the digital assets sector while also ensuring these novel financial instruments adhere to U.S. laws and regulations.

As part of its response to that executive order, the Treasury on Friday issued three reports on the future of money and payment systems, consumer and investor protection, and illicit finance risks, it announced in a press release.

The Treasury’s action plan to address illicit financing risks found digital assets offer cybercriminals an easy way to be paid for participating in ransomware, data theft, hacking, and other cybercrimes. Digital assets are also used to launder the proceeds of illegal activity by drug traffickers, fraudsters, terrorist groups, and others because they can offer a quick and relatively anonymous method for moving funds. Digital assets can be stolen by bad actors or used to evade sanctions, the report said.

U.S. law enforcement and regulatory agencies have responded to these threats by working to ensure financial institutions adhere to all applicable laws and regulations when they handle digital assets, as well as filing enforcement actions and criminal charges against noncompliant institutions and bad actors, the action plan said.

But with a combined market cap of $3 trillion, as Biden noted, the digital asset market is growing and expanding faster than government can monitor it. Many digital assets operate in foreign jurisdictions, thus outside existing U.S. regulatory frameworks.

The Treasury’s action plan laid out seven priorities for addressing the illegal financing risks posed by digital assets, including:

  • Monitoring emerging risks;
  • Improving global anti-money laundering/countering the financing of terrorism (AML/CFT) regulation and enforcement;
  • Updating Bank Safety Act regulations;
  • Strengthening U.S. AML/CFT supervision of virtual asset activities;
  • Holding cybercriminals and other illicit actors accountable;
  • Engaging with the private sector; and
  • Supporting U.S. leadership in financial and payments technology.

“The digital asset ecosystem is rapidly evolving, and the U.S. government is committed to continuing to monitor emerging risks through governmental efforts and engagement with international and private sector partners, which will inform other potential actions to mitigate these risks,” the action plan said.