Treasury, IRS urged to monitor crypto ATMs for trafficking clues

The booming business of crypto kiosks, where digital currencies are exchanged for cash, is increasingly linked to criminal activity, according to a government watchdog that has recommended federal regulators keep close tabs on their sites.

The Government Accountability Office, which released a report on cryptocurrency kiosks for lawmakers and federal agencies in September, announced its findings on Monday after removing some details of the investigation into human and drug trafficking. The watchdog agency has called for stricter regulations in the sprawling digital currency market, which is estimated to be worth more than $2.2 trillion.

Specifically, the Government Accountability Office recommended that the Internal Revenue Service and the Treasury’s Financial Crimes Enforcement Network require crypto-ATM operators to provide the physical locations of their kiosks.

“Reviewing registration reporting requirements and taking appropriate action, as needed, to better locate individual kiosks by the operator can help FinCEN and the IRS identify high-risk kiosk operators for compliance monitoring, while improving the information available to law enforcement to identify potentially unauthorized transactions. Legitimate Government Accountability Office said in its report.

In fact, many law enforcement agencies we spoke to reported that kiosk location data, particularly when linked to the operators of those locations, can improve the information law enforcement has for identifying the source of illegal transactions.

The Government Accountability Office has expressed concern that the machines provide an entry point for criminals to withdraw funds from the largely unknown markets for Bitcoin and other digital currencies.

The number of crypto-related suspicious activity and drug-trafficking reports filed with FinCEN increased from 252 in 2017 to nearly 1,500 in 2020, according to the report. But due to some monitoring shortcomings, the authors wrote that law enforcement agencies “may lack complete data” about the use of crypto ATMs in human and drug trafficking schemes.

The rise in risky activity could raise concerns for some banks that are already reluctant to fully embrace the lucrative cryptocurrency market. An estimated 35,000 cryptocurrency ATMs are operating in the United States, the Wisconsin Bankers Association said in a report. December report, indicating that many banks were reluctant to enter this field.

Crypto kiosk operators are required to register with FinCEN and the IRS, but the number of known devices has barely outpaced estimates of those operating in the dark.

There were 164 registered kiosk operators in the United States in 2020, nearly double the number in 2018, according to the Government Accountability Office. However, the number of known unregistered operators increased from 104 in 2018 to 133 two years later.

According to the GAO report, one kiosk operator can own more than 1,000 machines.

The GAO did not release comments from the various agencies that received the report, but both the Treasury and the IRS agreed with the report’s findings.

A spokesperson for the Blockchain Association, a trade group, declined to comment on the report.

One of the largest crypto ATM operators, Bitcoin Depot, did not immediately respond to a request for comment.