Letter to Hon. Merrick Garland, Attorney General - With Criminal Use of Cryptocurrency on the Rise, Senator Hassan Calls for Action from Federal Agencies

Letter

Dear Attorney General Garland,
I write to express my concern over the rise in the use of cryptocurrency for criminal purposes,
and request that your agencies take additional targeted steps to prevent and prosecute the use of
cryptocurrency for criminal purposes. Last month, the Town of Peterborough, New Hampshire
suffered a cyberattack where criminals stole $2.3 million in taxpayer dollars.
1 Before the original
fraud was discovered, most of the funds were converted into cryptocurrency and are likely now
unrecoverable.2
The anonymity provided by cryptocurrency has helped facilitate its use by criminals in a myriad
of ways. These uses include drug sales over the dark web, payments for ransomware attacks, tax
evasion, financing for terrorism and organized crime, money laundering, and more.
Cryptocurrencies are primarily bought, sold, and traded on centralized and decentralized
exchanges. Centralized exchanges use an order book to match, buy, and sell cryptocurrency
orders between traders, similar to how stocks are traded. Buyers and sellers rely on these
centralized exchanges to hold and handle their assets and process their transactions. But these
centralized exchanges often require know-your-customer ("KYC") information from their users
to partake in their services. Decentralized exchanges allow the direct exchange of
cryptocurrency, by using software to match buyers and sellers who wish to trade
cryptocurrencies without an intermediary institution controlling the funds. Many decentralized
exchanges have far less stringent KYC requirements than the centralized exchanges, and some
have no KYC requirements at all. Recent studies have found that many exchanges, both
centralized and decentralized, have weak KYC requirements.
Cryptocurrency can also be bought, sold, and traded at cryptocurrency kiosks and over-thecounter (OTC) trading desks.
4 Cryptocurrency kiosks are physical machines that look and
function similar to automated teller machines (ATM) and can be located anywhere while OTC
desks function similarly to foreign currency exchanges, where the user buys or sells the
cryptocurrency to the desk directly.5 Both cryptocurrency kiosks and OTC desks usually require
less KYC than centralized exchanges.
It is clear that more robust KYC requirements for cryptocurrency exchanges, cryptocurrency
kiosks, and OTC cryptocurrency trading desks could improve transparency in the U.S. and global
cryptocurrency markets, and lead other countries to follow our lead in requiring KYC
information for users on these services. This in turn could prevent illicit use of this novel
financial technology while allowing the legitimate use of cryptocurrencies to flourish as a whole.
To that end, I request answers to the following questions:
1. What authority do your agencies have to regulate U.S.-based cryptocurrency exchanges,
cryptocurrency kiosks, and OTC cryptocurrency trading desks and their users?
2. What additional authority could be helpful in your agencies' attempts to regulate U.S.-
based cryptocurrency exchanges, cryptocurrency kiosks, and OTC cryptocurrency trading
desks and their users?
3. Would additional civil or criminal penalties under 18 U.S. Code § 1960 aid your
agencies' efforts to prevent and prosecute the criminal use of cryptocurrency?
4. Would an additional waiting period requirement for conversion from fiat currency into
cryptocurrency help your agencies recover funds before they are converted and become
unrecoverable such as in the Peterborough case? Could an additional waiting period be
implemented for select transactions that could be designated as high risk, or according to
value, or would a waiting period need to need to be universally implemented?
5. Would an additional waiting period requirement for conversion from fiat currency into
cryptocurrency be permissible under current authorities? If not, what additional
authorities would your agencies require to institute one?
6. Would requiring cryptocurrency exchanges to reverse or reimburse users in cases of
fraud, similar to what is done with credit cards and wire transfers, help combat the
criminal use of cryptocurrencies?
7. Would a requirement that cryptocurrency exchanges reverse or reimburse users in cases
of fraud be permissible under current authorities? If not, what additional authorities
would your agencies require to institute one?
8. What additional authority or resources would assist your agencies in preventing and
prosecuting the criminal use of cryptocurrency?

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