Speaking at an event hosted by the Blockchain Association, Adeyemo said that crypto companies need to do more to curtail the flow of illicit finance, and that the lack of action across the sector presents a risk to the U.S.

"Our actions over the last year send a clear message: we will not hesitate to bring to bear tools across government to protect our national security," Adeyemo said in prepared remarks.

The Biden administration on Tuesday sent a letter to Congress, requesting new legislation that would grant Treasury the authority to police crypto marketplaces used by actors the U.S. government deems illicit, Adeyemo said.

The move comes after the U.S. in October issued sanctions aimed at disrupting funding for Palestinian militant group Hamas following deadly attacks in Israel, singling out a Gaza-based cryptocurrency exchange among other targets.

Last week, Binance chief Changpeng Zhao pleaded guilty to breaking U.S. anti-money laundering laws as part of a $4.3 billion settlement, and stepped down as CEO of the world's largest crypto exchange, conceding that he had "made mistakes."

Prosecutors said Binance broke U.S. anti-money laundering and sanctions laws and failed to report more than 100,000 suspicious transactions with organizations the U.S. described as terrorist groups including Hamas, al Qaeda and the Islamic State of Iraq and Syria, authorities said. Binance said in response that it had worked hard to make the platform "safer and even more secure."