Jane Khodarkovsky, a partner of Arktouros and former Human Trafficking Finance Specialist with the U.S. Department of Justice’s Money Laundering and Asset Recovery Section, said during a Congressional hearing that the traceability of blockchain enables prosecutors and other professionals to track bad actors who are trying to use cryptocurrency for illicit activities. Khodarkovsky offered several recommendations on how to reduce the volume of criminal activity related to crypto both within the U.S. and in other jurisdictions.
"What I found as a prosecutor—and my experience is not unique—is that when criminals turn to digital methods, they actually leave breadcrumbs for investigators to follow. Baked into this technology are lines of code which make up the blockchain itself. When analyzed by sophisticated professionals, blockchain analytics help investigators follow the money in a way that they cannot with more traditional payment systems, such as outgoing international wire transfers from U.S. banks or cash transfers," said Khodarkovsky.
Khodarkovsky's remarks were made during her testimony in the Nov. 15 hearing "Crypto Crime in Context: Breaking Down the Illicit Activity in Digital Assets," held by the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion, according to Congress.gov.
According to her testimony, Khodarkovsky said "robust enforcement mechanisms" already exist in U.S law against illicit financial activity; however, it's a challenge for law enforcement due to inadequate equipment or funding. She emphasized that crypto transactions are subject to the same rules as fiat currency transactions regarding economic sanctions; thus any U.S based crypto exchange violating these rules by facilitating transactions for sanctioned individuals or organizations would be liable under U.S law. The real challenge lies not with U.S-based exchanges but rather ensuring foreign exchanges' compliance.
She quoted Treasury Secretary Janet Yellen saying it's hard to use crypto for evading sanctions, even for large-scale transactions, as experts monitoring blockchains can notice them. Yellen confirmed that crypto exchanges are subject to existing anti-money laundering and counter-terror financing regulations.
In her testimony, Khodarkovsky highlighted the traditional financial system as a significant avenue for criminals conducting illicit activities. "There is no means of exchange that is more anonymous than cash, which truly leaves no footprint, and there is no blockchain for cash," said Khodarkovsky. She believes that the government's focus should be on the entire financial system.
She also stated that encouraging compliant U.S.-based digital asset companies to remain in the U.S. would reduce offshore criminal activity and prevent a "brain drain." The U.S. government should foster innovation and support private companies in showcasing risk management tools for crypto users.
Khodarkovsky recommended increasing funding for organizations like FinCEN, OFAC, and DOJ to boost their knowledge, expertise, and technological tools for detecting suspicious activity within the digital asset ecosystem. She proposed using blockchain technology to ensure that the U.S. government doesn't inadvertently fund criminals or terrorist groups. Blockchain can aid in avoiding corruption in government procurement processes and supply chains dependent on forced labor or sanctioned goods.
Her final recommendation was for the U.S. to take leadership in international collaborations to prevent bad actors from exploiting the global financial system.
