“Our problem is that actors are increasingly finding ways to hide their identities and move resources using virtual currency. What has always been true is that terrorists and other malign actors seek new ways to move their resources in light of the actions we are taking to cut them off from accessing the traditional financial system,” the Deputy Secretary said. 

"While we have had some success in rooting out illicit finance in the digital asset ecosystem, we need to build an oversight and enforcement regime that is capable of preventing this activity as more terrorists, transnational criminals, and rogue states turn to digital assets."

The Deputy Secretary set out three areas of reform: 

i. The introduction of a "secondary sanctions tool targeted at foreign digital asset providers that facilitate illicit finance."

ii. "Modernizing and closing gaps in existing authorities by expanding their reach to explicitly cover the key players and core activities of the digital assets ecosystem."

iii. Reforms to address "jurisdictional risk from offshore cryptocurrency platforms."  

While the Treasury continues to assess that "terrorists prefer to use traditional financial products and services," the Deputy Secretary said "we fear that without Congressional action to provide us with the necessary tools, the use of virtual assets by these actors will only grow."

CNBC interviewed Deputy Secretary Adeyemo on the use of cryptocurrency and digital assets by bad actors and why Congress needs to approve new regulation to fight against crypto crime.

The US Department of the Treasury, in its document 'General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals,'  said currently the law does not provide tax rules specifically addressing digital assets, with the exception of certain rules relating to broker reporting and reporting of cash transactions.

It explained that the "computational effort" involved in digital asset mining can be "substantial" and can therefore require a "correspondingly large amount of energy".

The Department said: "The increase in energy consumption attributable to the growth of digital asset mining has negative environmental effects and can have environmental justice implications as well as increase energy prices for those that share an electricity grid with digital asset miners. Digital asset mining also creates uncertainty and risks to local utilities and communities, as mining activity is highly variable and highly mobile. "

Under the proposal, "any firm using computing resources, whether owned by the firm or leased from others, to mine digital assets would be subject to an excise tax equal to 30 percent of the costs of electricity used in digital asset mining."

In addition, the GMAC’s Digital Asset Markets Subcommittee will reassess any future developments in the digital asset ecosystem to provide further recommendations to the approach in the taxonomy, based on the guidance of its members. The Subcommittee aims to support effective rules and regulations for digital assets, and recommends continued collaboration between industry, standard-setting bodies, and the regulatory community.

The report finds that investigations and enforcement actions taken by state securities regulators are increasingly linked to developments in technology, including digital assets and products marketed through the internet and social media. 

Report data reveals a significant rise in the number of investigations involving social media and internet scams in 2022, with 172 cases opened in 2022 compared to 127 cases in 2021. State securities regulators also reported filing 125 enforcement actions involving investments tied to digital assets, an increase of almost 30% from the previous year.