CFTC Chair Tarbert Lists Two Crypto Problems: Money Laundering & Terrorist Funding

Chairman of the United States Commodity Futures Trading Commission (CFTC), Heath Tarbert, recently discussed crypto at Harvard Kennedy School as part of a series of lectures that revolved around financial regulations.

Tarbert talked about the agency and its stance on cryptocurrency, and how the CFTC team is still processing the information about this emerging space and figuring out two major issues of the industry.

He said that the two main setbacks with the majority of cryptocurrency projects are money laundering and terrorist funding. He said that FinCEN, the SEC and the CFTC have issued a joint statement two weeks ago detailing that if an individual or a business is being regarded as a regulated entity, or even if they are not but still handle digital assets, then anti-money laundering laws are still applicable to that individual/business.

He further stated that the second issue is investor protection. Tarbert elaborated that there are initial coin offerings (ICOs) are issuing cryptocurrencies and digital assets that might be a cover for fraudulent schemes. According to Tarbert, guidance related to cryptocurrency in the industry is very limited, which brings up several debated issues such as margin trading, rightful ownership of digital assets and Facebook’s cryptocurrency project, Libra (which has been debated by lawmakers and regulators extensively).

He talked also about stablecoins, saying that when a digital asset is backed by a financial commodity there are a set of unaddressed questions, including backing issues, run risks and other matters included in the G7 report. Nevertheless, Tarbert still believes there is room for digital assets, as he thinks that for the first time there is a possibility of a global stablecoin. It does have its own set of issues of course, such as monetary policy and systemic risk, so the execution of this idea is still under discussion.

He also talked about how the agency can mark a business outside of its jurisdiction to protect markets and investors. He explained that if it’s a commodity, it falls within the jurisdiction of the CFTC; moreover, if it’s a derivative of a commodity, then it is also regulated and also has authority has to be enforced by the CFTC. And if it is a commodity that they don’t have a regulatory authority over, they do have authority for enforcement in cases of fraud and manipulation.

Theoretically, Tarbert said, the CFTC can go after cryptocurrency exchanges that are not registered with the CFTC or are not required to be registered, but are and there is any suspicion of fraud or manipulation occurring in the U.S.; because it would affect the markets of the counrtry, the CFTC has enforcement jurisdiction.

You can watch the full speech here: