U.S. Sens. Warner, Warren, Brown Reed Express Concerns to Treasury Regarding Potential Use of Cryptocurrency to Evade Sanctions
Mar 02 2022
WASHINGTON — U.S. Sens. Elizabeth Warren (D-Mass.), Senate Intelligence Committee Chairman Mark Warner (D-Va.), Senate Banking, Housing, and Urban Affairs Chairman Sherrod Brown (D-Ohio), and Senate Armed Services Committee Chairman Jack Reed (D-R.I.) led a letter to Treasury Secretary Janet Yellen raising concerns regarding the potential use of cryptocurrency to evade sanctions, which have become even more urgent amid the sanctions imposed on Russia after their invasion of Ukraine.
“We write to inquire about the Treasury Department’s progress in monitoring and enforcing sanctions compliance by the cryptocurrency industry and to express our concern that criminals, rogue states, and other actors may use digital assets and alternative payment platforms as a new means to hide cross-border transactions for nefarious purposes,” the senators wrote. “Given the need to ensure the efficacy and integrity of our sanctions program against Russia and other adversaries, we are seeking information on the steps Treasury is taking to enforce sanctions compliance by the cryptocurrency industry.”
The cryptocurrency industry has seen tremendous growth in recent years, with its market capitalization roughly tripling in 2021 to reach nearly $3 trillion. Recognizing the rapid growth of the market, the Treasury’s Office of Foreign Assets Control (OFAC) released its “Sanctions Compliance Guidance for the Virtual Currency Industry” last October, which outlines best practices for compliance and makes clear that all actors in the cryptocurrency space are “responsible for ensuring that they do not engage, directly or indirectly, in transactions prohibited by OFAC sanctions.”
“Strong enforcement of sanctions compliance in the cryptocurrency industry is critical given that digital assets, which allow entities to bypass the traditional financial system, may increasingly be used as a tool for sanctions evasion,” the senators wrote.
There are growing concerns that Russia may use cryptocurrencies to circumvent the broad new sanctions it faces from the Biden administration and foreign governments in response to its invasion of Ukraine. This could include the use of dark web marketplaces that are powered by cryptocurrencies to move funds and conduct transactions; the use of crypto wallets and mixing services that allow sanctioned entities to transfer and hide their wealth; deployment of a digital ruble that would allow Russia to conduct foreign trade without converting their currency into dollars; and ransomware attacks that would allow Russian actors to recoup revenues lost to sanctions. Nearly three-quarters of all global ransomware revenue last year, or more than $400 million in cryptocurrency payments, is estimated to have gone to Russia-affiliated entities.
Moreover, when OFAC has brought enforcement actions against cryptocurrency industry participants, it has generally accorded substantial deference to mitigating factors in assessing penalties – even in cases where a company has not voluntarily self-disclosed apparent violations. This approach has yielded penalties that are orders of magnitude below even the base civil monetary penalties for violations.
“These reports are even more troubling because of analyses that suggest that the cryptocurrency industry may not be fulfilling its responsibility to comply with U.S. sanctions,” the senators continued. “We are concerned that OFAC has not developed sufficiently strong and effective procedures for enforcement in the cryptocurrency industry.”
The senators have requested responses to their questions no later than March 23, 2022.
For full text of the letter click here.