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Warren crafts bill targeting cryptocurrency in Russia sanctions

Lawmakers on both sides of the aisle worry that cryptocurrency might be used to sidestep existing sanctions.
Image: Elizabeth Warren
Sen. Elizabeth Warren, D-Mass., questions Federal Reserve Chairman Jerome Powell at a Banking Committee hearing Thursday in Washington.Tom Williams / Pool via Reuters

WASHINGTON — As the U.S. searches for new ways to punish Russia for invading Ukraine, Sen. Elizabeth Warren, D-Mass., is crafting legislation she hopes will make it harder to use cryptocurrency to evade sanctions.

The proposal, still in draft form, has taken on new urgency as bipartisan concerns grow that members of Moscow’s elite might be able to sidestep sanctions by using digital currencies. It aims to force companies to choose between doing business in the U.S. or with sanctioned people and entities by threatening secondary sanctions on foreign crypto exchanges.

Warren and the chairmen of three key Senate committees raised the issue with Treasury Secretary Janet Yellen last week when they requested details about the Treasury Department’s enforcement of compliance with Russia sanctions by the industry.

“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,” Warren wrote in a letter signed by Intelligence Committee Chairman Mark Warner of Virginia, Banking Committee Chairman Sherrod Brown of Ohio and Armed Services Committee Chairman Jack Reed of Rhode Island.

The Biden administration has imposed sanctions on Russia’s central bank and defense industry, as well as President Vladimir Putin and wealthy members of his inner circle.

While the administration has the authority to unilaterally impose crypto sanctions, Warren’s bill could be used to apply pressure, much as Congress has ratcheted up calls for President Joe Biden to prohibit Russian oil imports.

Lawmakers on both sides of the aisle worry that cryptocurrency is emerging as a workaround to existing sanctions.

“Cryptocurrency is rearing its ugly head here,” Sen. Lindsey Graham, R-S.C., said last week after a classified briefing on Ukraine. “As you sanction the [Russian] central bank, which is a good thing, I worry about how the cryptocurrency could be used by the Russians to stay afloat.”

A Treasury official said the Treasury Department remains confident that the measures in place will prove effective.

“It will be extremely challenging to evade our sanctions without detection,” the official said. “While there are some deficient exchanges that may be willing to offer services to sanctioned persons and entities, they will not be able to support a large economy.

“Treasury has been significantly increasing its ability to track virtual currency transactions via partnerships across the [federal government] and with the private sector,” the official added.

One of the draft provisions in Warren’s proposal would seek to make it easier to verify the identities of customers and transfers to private crypto wallets by requiring financial institutions to keep detailed records and submit reports to the Treasury Department. The Treasury Department’s Financial Crimes Enforcement Network, known as FinCEN, is in the preliminary stages of drafting a similar rule, but Warren’s bill would codify that requirement.

FinCEN also released an advisory to financial institutions Monday about attempts to evade sanctions while noting that cryptocurrency has not become a major concern.

“Although we have not seen widespread evasion of our sanctions using methods such as cryptocurrency, prompt reporting of suspicious activity contributes to our national security and our efforts to support Ukraine and its people,” the notice said.

Other countries hit hard by sanctions have used cryptocurrency to sidestep the effects of punitive financial measures, according to several reports. North Korea has partly funded its missile program through stolen cryptocurrency, a U.N. report said, while another study found that Iran has mined cryptocurrencies to help offset sanctions.