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What role do digital assets play in illicit finance? Can the U.S. Treasury Department and other regulators play a bigger role in protecting digital asset investors? Are the current regulations still fit for purpose in the Bitcoin sector? These are among the questions the Treasury poses to the public in its latest “request for comment.”

Titled “Ensuring Responsible Development of Digital Assets; Request for Comment,” it was published this week and wants public feedback on illicit finance, consumer protections, promotion of innovation, and more.

Treasury has ramped up its sanctions against digital asset addresses, exchanges, and even miners this year, targeting North Korea and Russia. With the latter, the sanctions shot up after it invaded its neighbor Ukraine in February this year.

Now, the department wants to know what the public thinks about its actions and if it can do better.

“Treasury welcomes input on any matter that commenters believe is relevant to Treasury’s ongoing efforts to assess the illicit finance risks associated with digital assets as well as the ongoing efforts to mitigate the risks,” it read.

The request for comment is due to President Joe Biden’s proposed framework on digital asset regulations issued last week, which followed up on March’s executive order. Biden’s latest framework called on all regulatory agencies to adapt a more robust approach to digital asset regulations. However, it held back on conferring any specific mandate to the SEC, CFTC, or other agencies that are on the frontline in Bitcoin regulations.

Some of the questions the Treasury wants the public’s feedback on are:

  • If it has fully defined the illicit financing risks associated with digital assets.
  • How future innovations in digital assets could present new illegal financial risks. 
  • The role of NFTs and DeFi in illicit financing.
  • What, if any, additional clarity is required on AML/CFT and sanction obligations.
  • How the government can combat ransomware.

The department also wants to hear from the public on central bank digital currencies (CBDCs), specifically on how it can “effectively support the incorporation of AML/CFT controls into a potential U.S. CBDC design.”

This last concern might be a bit of a stretch, given the Federal Reserve has not yet decided on the feasibility and need for a digital dollar or FedCoin as some call it. The Fed recently made it clear that a FedCoin is not in its immediate plans, with board member Michelle Bowman saying the FedNow instant payments system is a better alternative to the CBDC.

What Bitcoin shouldn’t do vs. what it can

While the range of issues it has called for feedback on is diverse, Treasury is mainly interested in using digital assets in illicit activities.

Brian Nelson, the Under Secretary for Terrorism and Financial Intelligence, reiterated this, stating that in the absence of sufficient regulations, “digital assets can pose a significant risk to national security by facilitating illicit finance, such as money laundering, cybercrime and terrorist actions.”

“As we work to implement the Illicit Finance Action Plan, hold bad actors accountable and identify potential gaps in existing enforcement, we look forward to receiving the public’s input on this urgent work,” he said.

The Treasury’s focus on the illicit side of digital assets (which studies have shown accounts for 0.15% of transacted volume) has been criticized by many in the digital assets sector. U.S.-based Blockchain Association described it as “a missed opportunity to cement U.S. crypto leadership.”

This criticism has done little to stop the department. On September 20, in a hearing before the Senate Banking Committee, Elizabeth Rosenberg still claimed digital assets are being used to evade sanctions. Rosenberg, who is tasked with curbing terrorist financing at the department, specifically pointed to the use of mixers, months after Tornado Cash was sanctioned.

“Anonymity-enhancing technology such as mixers […] are indeed a concern for understanding the flow of illicit finance and getting after it,” she told lawmakers.

Watch: CoinGeek Conference New York, Investigating Criminal Activity on the Blockchain

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