Expert submission

Response to the U.S. Treasury Department’s consultation on digital assets and illicit finance

International Center for Law & Economics (November 2022)

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We thank the U.S. Treasury Department for the opportunity to participate in this Request for Comment on “Ensuring Responsible Development of Digital Assets.”[1] Our response most directly addresses part “B” of the Request for Comments, focusing particularly on the following questions:

  • “What additional steps should the United States government take to more effectively deter, detect, and disrupt the misuse of digital assets and digital asset service providers by criminals?” (B1)
  • “Are there specific areas related to AML/CFT and sanctions obligations with respect to digital assets that require additional clarity?” (B2)
  • “What additional steps should the U.S. government consider to address the illicit finance risks related to mixers and other anonymity-enhancing technologies?” (B7)
  • “What steps should the U.S. government take to effectively mitigate the illicit finance risks related to DeFi?” (B8)

Agencies whose primary function is law enforcement are chiefly concerned with the effectiveness of that mission and may not have the resources to properly consider the costs of actions that appear to promise effectiveness. We thus welcome the whole-of-government approach to the responsible development of digital assets adopted in Executive Order 14067, which invites a rigorous assessment of costs and benefits across various policy objectives.[2] The principal policy objectives set out in the Executive Order cover both law-enforcement and national-security concerns, while supporting technological advances and promoting access to safe and affordable financial services. Given the Order’s broad scope, some ways of pursuing its diverse policy objectives may be in tension. Our aim in this response is to shed light on two important areas of such tension.

First, policymakers must determine which entities in the crypto ecosystem are the most appropriate targets for law-enforcement and national-security efforts. We suggest that the costs of targeting crypto’s infrastructural or “base” layer may to a disproportionate extent impede the attainment of other policy objectives.

Second, it is important to determine the appropriate policy response to privacy-enhancing crypto technologies. As Treasury seeks to forward the goals of consumer and investor protection, promotion of access to finance, support of technological advances, and reinforcement of U.S. leadership, all point in favor of facilitating responsible use of privacy-enhancing technologies, including so-called “privacy coins.”

Read the full comments here.

[1] Ensuring Responsible Development of Digital Assets; Request for Comment, TREAS-DO-2022-0018-0001, 87 FR 57556, U.S. Dep’t of the Treasury (Sep. 20, 2022),

[2] Executive Order on Ensuring Responsible Development of Digital Assets, White House (Mar. 9, 2022), (hereinafter, “Executive Order”).