U.S. Treasury official warns crypto industry against proactively sanctioning 'problematic' wallets

U.S. Treasury official warns crypto industry against proactively sanctioning 'problematic' wallets

FinCEN Deputy Director Alessio Evangelista said crypto service providers should not wait for the government to designate a wallet if it is being used for illegal activity.

A senior U.S. financial crimes enforcement official on Thursday directed the crypto industry to proactively blacklist "problematic" wallets even before the Treasury Department tells them to do so.

Alessio Evangelista, deputy director of enforcement at the Financial Crimes Enforcement Network (FinCEN), said crypto service providers have "too often" chosen to bury their heads in the sand when it comes to obviously suspicious wallets "until the day an OFAC designation or criminal indictment occurs."

Speaking to an audience of compliance professionals at the Chainalysis LINKS conference, Evangelista warned that virtual asset providers are "putting their own reputations on the line" by ignoring "clearly visible red flags that they could have, and arguably should have, taken note of a long time ago."

The comments underscore growing concern among federal officials about cryptocrime, a multibillion-dollar quagmire that in some cases now threatens national security. This month, Treasury Department officials for the first time sanctioned a crypto-mixer - an on-chain privacy tool crypto owners use to cover their tracks - for processing assets stolen by North Korean hackers in the $620 million Axie Infinity heist.

"These funds were stolen to support a totalitarian regime that spends its money on developing weapons of mass destruction at the expense of feeding its citizens," Evangelista said. He said that virtual asset providers have a duty to effectively police themselves. Those that fail to do so are "putting their own reputations on the line."

He also pointed to crypto projects for which "decentralization" is more of a buzzword than a reality. Crypto companies operating under the direction of individuals cannot avoid their compliance obligations by falsely calling themselves decentralized, he said.

North Korean hackers have used several crypto-mixers to launder funds stolen from Axie, including Blender, the first mixer to be sanctioned, and Tornado Cash. A spokesperson for Tornado Cash previously told CoinDesk that "OFAC is the judge of which addresses to ban."