The U.S. Department of the Treasury Secretary Steven Mnuchin called concerns surrounding crypto a “national security issue” in a news briefing on cryptocurrencies today, stressing that the administration’s “number one issue” is keeping bad actors from utilizing crypto for nefarious activity. The Block has edited this transcript for clarity and length.
Secretary Mnuchin: Good afternoon everybody. Thank you for being here. Recently as you know there's been a great deal of interest about digital assets including cryptocurrency such as Bitcoin and Libra. There are many regulatory and supervisory questions regarding Libra virtual assets and virtual currencies. But I will focus primarily on the serious concerns the Treasury has regarding the growing misuse of virtual currencies by money launderers, terrorist financiers and other bad players. This week representatives of Facebook's Calibra project will go to Capitol Hill to discuss their proposal for a cryptocurrency, Libra. At the Treasury Department across the U.S. government and with the international financial community, there's been a great deal of activity recently related to the regulation and the treatment of digital assets in crypto currencies. I'd like to give some brief explanatory remarks about what we've been doing on this front since there's lots of interest. And then I will open it up to questions.
Mnuchin: Last month the Libra Association, a consortium of 28 businesses including a Facebook subsidiary, announced that it is developing a crypto currency called the Libra. The Treasury Department has expressed very serious concerns that Libra could be misused by money launderers and terrorist financiers. Cryptocurrency such as Bitcoin had been exploited to support billions of dollars of illicit activity like cybercrime, tax evasion, extortion, ransomware, illicit drugs, human trafficking. Many players have attempted to use crypto currencies to fund their malign behavior. This is indeed a national security issue. The United States has been at the forefront of regulating entities that provide cryptocurrency. We will not allow digital assets service providers to operate in the shadows and will not tolerate the use of the cryptocurrencies in support of illicit activities.
Mnuchin: Treasury has been very clear to Facebook, bitcoin users and other providers of digital financial services that they must implement the same anti money laundering and countering financing of terrorism, known as AML CFT, safeguards as traditional financial institutions. Money transmitters of cryptocurrency must comply with the relevant Bank Secrecy Act obligations known as BSA and register with the Financial Crimes Enforcement Network known as FinCEN. Many people are not familiar with FINCEN. It is a bureau of the U.S. Department of Treasury fin sends missions to safeguard the financial system from illicit use, combat money laundering and promote national security through the dissemination of financial intelligence. Last year alone, it collected over 20 million BSA reports and is collected over 300 million in the last eleven years. FinCEN implements the Bank Secrecy Act regulation and has federal regulatory, supervisory and enforcement authority over money service businesses and banks. The rules governing money service providers apply to physical and electronic transactions alike. As money service businesses, cryptocurrency money transmitters are subject to compliance examinations just like every other U.S. bank. To be clear FinCEN will hold any entity that transacts in Bitcoin, Libra or any other cryptocurrency to its highest standards.
Mnuchin: I also recently established the Financial Stability Oversight council's working group on digital assets. This FSOC group enables U.S. financial regulators such as FinCEN, the Fed, OCC, CFT, CFPB, S.E.C. and other key stakeholders to work together to combat risks posed by cryptocurrencies. As the president has said, Bitcoin is highly volatile and based on thin air. We are concerned about the speculative nature of Bitcoin and will make sure that the U.S. Financial system is protected from fraud. Given the international nature of cryptocurrencies, we are also going to great lengths to ensure that effective regulation does not stop here at the U.S. border. Last month led by the United States the financial action task force known as FATF, the global standards set or for AML CFTC, adopted comprehensive measures on how countries must regulate and supervise activities and providers in this space. This was a major step towards harmonizing international regulations concerning cryptocurrencies. We have also had extensive work at the G20, and I will be addressing this again this week at the G7 finance ministers in France. To be clear, the US welcomes responsible innovation, including new technologies that may improve the efficiency of the financial system and expand access to financial services. That being said with respect to Facebook Libra and other developments in cryptocurrencies our overriding goal is to maintain the integrity of our financial system and protect it from abuse.
Mnuchin: Treasury takes very seriously the role of the U.S. dollar as the world's reserve currency and we'll continue our efforts to protect our country and secure the U.S. and global financial systems.
Mnuchin: With that I know there's been a lot of interest in this subject and perhaps a few others so I'll take a few questions in the back.
Question 1: Thank you Mr. Secretary. I have two questions. The first one is that Jay Powell at the Fed said last week that FSOC would be meeting in the future to discuss Facebook Libra products specifically. Has that happened yet? And then secondly you talk about Facebook putting this product out. If Facebook is able to ultimately resolve all of your concerns about AML and other issues, do you want Facebook to be in the business of issuing cryptocurrency?
Mnuchin: So let me make the first comment which is we and I say we are either at the principal's level or at the deputy's level, we've had multiple meetings across the regulators with representatives of Facebook and expressed our concerns. We've also had multiple meetings of the FSOC working group. I think you know Jay Powell and I meet weekly and we've talked about this extensively, so there are these discussions going on they will continue to go on. Again, to the extent that Facebook can do this correctly and can have a payment system correctly with proper AML that's fine. They've got a lot of work to do to convince us to get to that place.
Question 1: Facebook has had privacy issues in the past. How does that play into your concern and what is your level of concern with Facebook having Libra.
Mnuchin: Well again I would just say we we obviously have concerns with the privacy issues. There has been items in the press about potential settlements. I'm not going to comment on that, but obviously the regulators and one of the regulators, as I've said most people haven't heard of FinCEN, so one of the reasons I wanted to explain this is whether there are banks or whether they're non banks they're under the same regulatory environment for fence. And we will hold them accountable and they're gonna have to convince us of very high standards before they have access to the US financial system.
Question 2: So at the Social Media Summit last week the president essentially accused the social media giant of animus against conservatives. Can you assure the markets and everyone watching that whatever actions this government will take is not a result of the President's view that these social media giants are biased against against him?
Mnuchin: Well again I can, what I will tell you is the president does have concerns as it relates to Bitcoin and cryptocurrencies and those are legitimate concerns that we've been working on for a long period of time. But no we're not going to target any one entity, everybody is playing by the same rules. Again, whether you walk into a money service provider, or whether you walk into a bank or you do it digitally, you're going to have to adhere to the same rules.
Question 3: Considering that bitcoin is decentralized, what can you tell Americans who want to invest in bitcoin and other cryptocurrencies?
Mnuchin: Well one I'd tell them to be careful, okay. They should be clear why they're investing in them. There's a lot of good things to invest in. Obviously we know that. But you know our number one issue is that: one, we don't want bad actors using cryptocurrency. That's our number one issue. I think to a large extent these cryptocurrencies have been dominated by illicit activities and speculation. We'll make sure that the general public and investors understand what they're investing in and whether it's the SEC or other regulators, there's proper disclosures.
Question 4: So you're comfortable with Facebook launching a cryptocurrency if they do it in the right way.
Mnuchin: I didn't say I was comfortable with them launching a currency.
Question 4: If they launched it in the appropriate and in a safe way?
Mnuchin: But I'm not I'm not comfortable today.
Mnuchin: So let let me just be careful as I've said they and others have a lot of work to do before they get us comfortable.
Question 4: The timeline there – is Facebook being candid with the administration about it? How many years it would take them?
Mnuchin: I think I think they're being very candid with the administration in where they are. I'm not going to publicly speculate how long I think it will take them to get to the point where we're comfortable with it, but there they are a long way away from – And again part of it there's been a lot of public interest in this, that's why I want to give the public the assurance – but before they or anyone else does this that we're going to make sure the financial system is protected. And as I said there's a lot of illicit activity that we'll be shutting down for people who are using cryptocurrencies for bad purposes.
Question 5: Thank you Mr. Secretary. Can you give a sense about how those discussions are going with your counterparts from other G20 countries on this particular area.
Mnuchin: I'd say there's there's enormous agreement on this. As I said I was in Orlando I think it was two weeks ago the US just finished the presidency of FATF. I gave gave the keynote address there. That was adopted. I mean that is the largest organization much, bigger than the G20, and is kind of the gold standard of AML. And those rules were adopted. And at the G20 in the G7 we have absolute general agreement that in the U.S., if you deal with the U.S. financial system you have to adhere to the same rules. And that's something that the rest of the G20 is very focused on.
Question 6: So you said that Treasury is concerned about bad actors using cryptocurrency such as Bitcoin which has become very popular among white nationalist groups. What sort of actions is Treasury taking to stop these bad actors from using these decentralized crypto currencies?
Mnuchin: Well not as relates to any specific group, I'm not going to comment on any specific group but what I would tell you is that FinCEN has multiple investigations going on. There are, there have been enforcement actions. There will be more enforcement actions we're going to beef up our resources for regulatory oversight. This is something we're absolutely focused on and on top of.
Question 7: What specifically language-wise are you looking for out of the G-7 finance ministers meeting on it, and are you confident that you'll get a statement that has some teeth in it?
Mnuchin: I'd say again My my my understanding is that you know there'll be a chairman's report there won't necessarily be a communique in general but I leave that to the French. I will say that we have working groups at the G7 and G20. This has been in the G20 notifications. I think you know we've got a lot of interest in the digital tax, we're focusing on the international tax issue but this will definitely be high on our discussion issue.
Question 8: Back in March, Treasury imposed restrictions or sanctions on the Venezuelan cryptocurrency the Petro. And our understanding is that the Venezuelan regime is still trying to keep it afloat. Can you give us an update on the response that you've gotten from this restrictions and whether or not you have any knowledge that the Venezuelan regiment is fine?
Mnuchin: Yeah I'm not aware of anybody who's really using that or it's taken off or had any success whatsoever.
Question 8: The restrictions worked?
Question 9: Aren't you afraid of painting everybody with the same brush? You know you have some of the crypto have been going to CFTC. They've been going with IMF and the ECB and every regulator getting this done within the rules and Calibra sort of comes up. So you're sort of putting everybody in the same–
Mnuchin: No I don't I don't I don't think we're doing that at all. Matter of fact you know as I said one of the reasons why I wanted to speak about this is there's been lots of activity that's been going on for the last year on this. And you know whether it's Congress or other areas of the press, because of Libra it's caught a lot of attention and people weren't aware of all the work that's been going on so that that's the purpose.
Question 10: I wonder if you can be specific as to the illicit actions that you're referring to. Can you give us some examples so the American people can know if they're interested in getting into cryptocurrency what things to avoid?
Mnuchin: Well again if you're dealing with a legitimate entity in the U.S., those legitimate entities that are attached to crypto are indeed subject to the Know Your Customer Rules and AML. If you're looking to use bitcoins to go through those entities and go on the dark web and think you're not going to get caught, you're gonna get caught. So this is a warning if you want to use it for speculation, that's one thing. If you want to use it for illicit activities, we're going to put the full effort of the U.S. Treasury and the regulators onto that.
Question 11: Do the new regulations favor traditional banks, maybe in the same way?
Mnuchin: No, this is this is intended to be a level playing field, whether you're money-gram. or you're a bank or you're an online or you're PayPal. This is intended to be a level playing field. And again what we do encourage, and there's been a lot of financial innovation away from traditional banks for electronic payment systems, lots of people use electronic payment systems in dollars very effectively and you know we'll continue to support those activities. We want technology to evolve.
Question 12: Yes. Do you believe that the. Rise in Bitcoin value was fueled by fraud? Have you seen evidence of that?
Mnuchin: I'm not going to speculate. I have no idea why Bitcoin trades where it is. I'm not commenting that it's higher or low again. I'm here to talk about the regulatory environment and warn people against illicit use.
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