Federal law enforcement agencies detailed their efforts to combat the misuse of digital assets and cryptocurrencies as vehicles for crime, emphasizing adherence to compliance guidelines.

Speaking at a conference hosted by the American Bar Association, leaders in the field of digital asset crime enforcement — including Dallas Woodrum, division chief at the Treasury Department’s Office of Foreign Assets Control — talked about some of the decentralized financial technologies , who observe.

“From our perspective, when it comes to virtual currency and digital assets, a particular concern is to make sure that we track and disrupt the use of visual assets and virtual currency to avoid our sanctions,” Woodrum said. “What we don’t want is for virtual currency, NFTs and other digital assets to be used as a means to evade our sanctions and to transfer funds that would be prohibited.”

Woodrum added that his office is softening its enforcement against sanction evasion through cryptocurrency with legitimate transactions. He specifically said that OFAC does not want to hinder technological innovation in the digital asset sector.

“We are focused on sanctioned individuals, criminals, malicious actors who seek to abuse our digital assets to evade our sanctions programs,” he said.

Treasury officials made headlines earlier this year after sanctioning online digital currency mixer Tornado Cash. This punishment is a result of the platform having laundered around $7 billion in virtual currencies and assets since its inception in 2019.

Woodrum said a major component of his law enforcement office’s efforts is working in tandem with the private sector to promote greater compliance with the new federal guidelines.

“We aim to engage with the private sector to identify where guidance is needed,” he said. “We have taken significant action over the past few years to sanction a number of entities that use virtual currency for illegal activities.”

Other law enforcement officials agreed that private sector compliance is a critical solution to better controlling illegal cryptocurrency activity.

Eun Young Choi, the inaugural director of the Department of Justice’s National Cryptocurrency Enforcement Team, also highlighted crypto mixers as a problem for her office. However, she added that sanctions and other enforcement tactics are more of a last resort in digital asset regulation. In addition to improving the agency’s ability to track and seize assets, she said working alongside private sector companies to promote regulatory compliance is the department’s preferred method of regulating the digital assets space.

“Crime and criminal law enforcement are sort of the last hammer when it comes to dealing with trying to clean up the ecosystem and rid it of abuses,” Choi said. Some policies that private businesses can put in place, namely Know Your Customer policies and other solutions that depend on identity verification, are “crucial” for law enforcement to successfully track illegal activity, she said.

“We really think the key to cleaning up the digital asset ecosystem and making it free of abuse is to work hand in hand and rely on our private sector actors,” she said. That step is currently in what Choi described as a “maturation phase,” but she said companies will always have better insight into the inner workings of their platforms, which will help law enforcement.

“They’re always going to have a better idea of ​​the types of abuse that’s happening on their platforms,” ​​she said.

Woodrum agreed, saying the Treasury Department intends to prioritize compliance efforts by encouraging private companies to adhere to federal guidelines when developing digital financial tools and to have a deep understanding of the customers using their platforms, particularly their geographical location.

However, with an increased number of digital currencies and assets being created that can outpace government regulatory efforts, Woodrum reiterated the importance of fostering strong private industry ties.

“I think that’s important [digital asset] the industry … is evolving and new tokens are being created and new technologies are being deployed, it’s important from our perspective to understand the risks and challenges that are inherent in sanctions compliance,” he said. “So we’re committed to listening to the industry as well so we can learn more about how to regulate in this space.”