Why doesn't the U.S. outlaw or strictly regulate cryptocurrency to prevent it from being used by other countries to evade U.S. sanctions? Is there a rationale behind this? Is there a concern about the ramifications of a decentralized currency that doesn't need to go through the American dominated SWIFT system?
The US certainly is moving in the direction of regulation.
Senior officials at a handful of U.S. financial regulatory agencies are exploring new ways to regulate the cryptocurrency market but have yet to decide how to do so, the Financial Times (FT) reported on Sunday (May 30).
There's very little that can be done to prevent or directly regulate the use of cryptocurrencies - that's the whole point of using them.
However, the U.S. has recognized them as still being currencies - and hence financial institutions or money service businesses that deal in them are still subject to the Bank Secrecy Act - since 2011, with additional steps taken as recently as 2020.
FinCEN, the Financial Crimes Enforcement Network, reaffirmed that this included cryptocurrency dealers in late 2019:
Kenneth Blanco, director of the Financial Crimes Enforcement Network (FinCEN), warned the crypto industry Monday to take heed of the Bank Secrecy Act (BSA) and other AML regulations when setting up businesses – because his agency certainly will.
Blanco, who spoke at Georgetown University as part of the first day of DC Fintech Week, told moderator Chris Brummer that companies have no excuse for not knowing the law.
“What we tell everybody is if you’re going to innovate, you better make sure that you’re complying with your regulations prior to executing that innovation or prior to going to market,” Blanco said.
“You better make sure that that happens because frankly … you don’t get to build it and then everybody comes around over it.”
He went on to add:
“You have to make sure that you comply with the law first and then you can execute and get to market. Otherwise that’s not happening … I’ll tell you if you can’t comply with your BSA, you’re going to have a problem … you must comply and we as a regulator, as the primary regulator and the administrator of the BSA, we will make sure that you do and you’re going to have a hard time if you don’t.”
FinCEN won’t accept that a company “can’t” comply with the law either, he said. Any firms which do not believe they are able to fulfill the requirements in the BSA should not come to market, Bianco said.
“That’s what our expectation is going to be moving forward,” he said.
The Bank Secrecy Act itself doesn't prevent the transactions, but requires the financial institution to take steps to report large or suspicious transactions, and noncompliance can incur civil or criminal penalties:
The Currency and Foreign Transactions Reporting Act of 1970 (which legislative framework is commonly referred to as the "Bank Secrecy Act" or "BSA") requires U.S. financial institutions to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. It was passed by the Congress of the United States in 1970. The BSA is sometimes referred to as an "anti-money laundering" law ("AML") or jointly as "BSA/AML." Several AML acts, including provisions in Title III of the USA PATRIOT Act of 2001, have been enacted up to the present to amend the BSA. (See 31 USC 5311-5330 and 31 CFR Chapter X [formerly 31 CFR Part 103] ).
So, directly, they can't do much, but those who handle it are required by U.S. law to track it, with civil or criminal consequences for those who don't.