US looks to toughen sanctions on Russia with crackdown on crypto-mixing

US looks to toughen sanctions on Russia with crackdown on crypto-mixing

The US government is not holding back in its crackdown on cryptocurrency “mixers” to impose economic sanctions on Russia for its invasion of Ukraine.

On Tuesday, the US Senate Committee on Banking, Housing, and Urban Affairs held a hearing on “Tightening Russia: Smart Sanctions, Economic Statecraft, and Next Steps.” Committee Chairman Sherrod Brown (D-OH)’s opening statement noted the need to impose “economic sanctions designed to weaken the Russian economy.”

The managing director of the arrangement, Pat Tomey (Republican for the Palestinian Authority), added that the war, which began in February, “will not go as planned.” [Russian president Vladimir] put it in the . But I say this to my colleagues: now is not the time for half-measures or inaction. It is time to crush the will of the Kremlin to continue this war.”

Early in the conflict, many digital asset influencers hailed ‘crypto’ as a way for individuals to donate quickly and anonymously to the Ukrainian cause while also suggesting that Russia could use digital assets to bypass mainstream financial channels and thereby evade economic sanctions imposed by the West. .

Neither of these accounts has proven completely accurate, with the crypto brothers demonstrating a much greater interest in promoting their individual projects and/or collecting the airdrops promised (but never delivered) by Ukraine. Even the largest digital tokens lacked the liquidity needed for Russia to make up for the shortfall in its economy, leading the FBI to declare that “Russia’s ability to circumvent cryptocurrency sanctions may have been greatly exaggerated by them and others.”

However, Russian officials continue to explore the ability of digital assets to settle cross-border transactions. Meanwhile, the US government’s Office of Foreign Assets Control (OFAC) is cracking down on crypto ‘mixers’ like Tornado Cash, in part to reduce the potential for sanctioned Russian oligarchs to manipulate the system. It didn’t help that the developer behind Tornado Cash is said to have ties to a Russian entity previously sanctioned by OFAC to help “increase Russia’s offensive cyber capabilities.”

Calling out Warren on Coinbase

Tuesday’s hearing called only two witnesses: Elizabeth Rosenberg, Assistant Secretary of the Treasury for Terrorism Financing and Financial Crimes. and Andrew Adams, director of the Justice Department’s KleptoCapture Task Force.

Rosenberg’s opening statement made no mention of cryptocurrencies or mixers, but Adams praised the Department of Justice’s “robust and successful” efforts to target sanctions evaders involving “everything from cryptocurrency to commerce-based money laundering.”

However, when panel members were allowed to cross-examine witnesses, Senator Elizabeth Warren (D-Mass.) expressed concerns that “Russian elites” might use cryptocurrency to evade sanctions, citing historical precedent set by North Korea. Warren was among the senators who presented The Digital Asset Sanctions Compliance Enhancement Act In March, which also targeted the potential use of digital currencies by Russians.

Since the bill was introduced, Warren has claimed that the Treasury Department has identified “numerous cases of Russian entities attempting to evade sanctions using cryptocurrency.” Warren Rosenberg asked if digital assets can now be used by Russian oligarchs to evade sanctions. Rosenberg admitted that Warren’s scenario was “possible”.

Warren then turned to the claims that “many crypto boosters continue to claim that cryptography cannot be used as a means of evading sanctions…because the blockchain is transparent.” But Warren said, “An entire industry has emerged to create tools for illicit actors to interlock or obscure crypto transactions,” citing “mixers” as an example. Rosenberg replied that “technologies that enhance anonymity such as blenders … are already a concern for understanding and pursuing the flow of illicit financing.”

Citing US enforcement actions against Tornado Cash and Blender, Warren claimed that some prominent crypto figures were “outraged” by these actions and were “fighting for a chance to retain the right to launder money.” Warren singled out US-based Coinbase (NASDAQ: Currency) in exchange for “funding a lawsuit against Treasury for its work to punish these mixers.”

Warren Rosenberg asked if sanctions against blenders would help “strengthen our system against Russia and other illegal actors.” Rosenberg described sanctions against mixers as “an effective way we can use to signal that we can’t afford money laundering, whether it’s to a Russian, Iranian, or North Korean criminal actor, or wherever they might come from.”

Warren ended her allotted time by declaring, “When crypto boosters cry the loudest, you’re probably going after something. If cryptocurrencies have nothing to hide about money laundering for oligarchs, drug lords or tax evaders, they shouldn’t mind In a little transparency.”

From Russia with sanctions

Tuesday also witnessed the approval of the House of Representatives HR 7338also known as the Cryptocurrency Transparency Law in Russia, which was introduced in March.

HR 7338 lauds cryptocurrencies as an “effective cross-border payment tool to send millions” to Ukraine, but notes that as other sanctioned countries have used cryptocurrencies to evade sanctions, “there are growing concerns that these digital assets may be used to circumvent sanctions.” Now… imposed on Russia and Belarus.”

Assuming HR 7338 becomes law, the Secretary of the Treasury will have 180 days to provide an assessment of how digital currencies might affect sanctions enforcement against the Russian government and targeted Russian citizens. This includes sanctions evasion efforts that use “decentralized finance technology or other similar technologies to effect transactions, including digital wallets, digital asset trading platforms, and digital asset exchanges.”

Looking closely back home, the Treasury was also asked to assess how digital currencies could “undermine the national security interests of the United States and affect the effectiveness and enforcement of sanctions, and enforcement of anti-money laundering provisions.”

Finally, the Treasury Department should detail how the US government will work with “private actors” to achieve its goals, and recommend “new legislative and regulatory actions needed to enhance” the government’s ability to prevent states/individuals from evading sanctions through digital currencies. .

Another report on how blockchain technology can be used to aid Ukraine’s humanitarian needs will be submitted by the Secretary of State within 30 days of HR 7338 becoming law. This includes how to “prevent corruption through the use of ‘Web 3’ technologies.”

Pay this guy his digital money

HR 7338 also contains a section that does not specifically include Russia/Ukraine, which asks the Secretary of State why “the State Department has decided to pay cryptocurrency rewards” for information that prevents international terrorism. The secretary will be required to disclose every cryptocurrency payment already made by the department under the Rewards for Justice program and alert Congress “no later than 15 days.” Before Pay a bonus in cryptocurrency.” (Confirmations added.)

The Secretary of State was asked to analyze whether crypto payments are “more likely to incentivize whistleblowers to come forward” than if they were promised fiat currency rewards. The minister is also asked to analyze whether making such cryptocurrency payments “could undermine the dollar’s ​​status as the global reserve currency” or “provide bad actors with additional, hard-to-trace funds that can be used for criminal or illicit purposes.”

While HR 7338 may have passed the House, it remains to be seen how urgently the bill will be dealt with in the Senate. There are only a few days the Senate will sit before the November midterm elections, with a few more sessions scheduled before Christmas.

Watch: BSV Global Blockchain Agreement Presentation, Trust But Verify: Everything

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