NSI on the Hill represents the views of a number of the National Security Institute’s experts—many with longstanding experience working on national security-related matters—and it identifies key considerations and recommendations for Congress to consider regarding the toughest foreign policy challenges facing U.S. policymakers today.
Overview
The advent of Bitcoin, and subsequently other digital currencies, along with other Web3 elements like decentralized finance (DeFi) has introduced new considerations regarding how the United States should treat economic policy and, by extension, national security. Crypto’s continued innovation is creating significant implications for the U.S. national security community, including anti-money laundering and countering the financing of terrorism (AML/CFT) efforts, sanctions enforcement, and criminal investigations, particularly the growing ransomware epidemic. While well-intentioned, some U.S. regulators and policymakers are attempting to apply existing ill-fitting rules to this new industry in ways that could severely stifle the ability of the United States to remain at the forefront of this transformative technology, which is key to maintaining U.S. leadership of the global financial system.
NSI seeks to promote policies that are pro-innovation while supporting the development of new paradigms for achieving key U.S. national security objectives, including those around AML/CFT, law enforcement investigations, financial intelligence collection, and sanctions viability. This paper provides a roadmap of recommendations for Congress to consider as it begins to tackle the question of regulating the crypto industry.
Key Recommendations for Congress
- Congress could pass bipartisan legislation to provide broad policy guidance and a market-friendly regulatory framework to govern digital assets that clears away conflicting state and local law, as well as provides increased funding to federal, state, and local law enforcement agencies to better understand and interdict illegal activity traced to blockchains.
- Congress could amend the Bank Secrecy Act (BSA) to include non-fungible tokens (NFTs) in AML/CFT guidance to make explicit how these novel instruments are treated by financial regulators.
- Congress could direct the Treasury Department to institute a risk-based approach to reporting requirements for unhosted/self-hosted wallets, which would empower individual financial freedom through self-custody of financial assets while allowing for appropriate oversight of national security concerns.
- Congress could incentivize increased cooperation, specifically detailed information sharing and threat reporting, between federal agencies and the private sector regarding ransomware and other cyber-based threats.
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Read the full report here.