Cryptocurrencies have drawn the attention of policymakers in the US, with a bill being proposed that will place restrictions on how they are used. The likelihood of crypto being used to launder vast sums of money by sanctioned individuals has been disputed, however.
The Digital Assets Sanctions Compliance Enhancement Act has been proposed by Senator Elizabeth Warren and seeks to strengthen the “sanctions program and close off any avenues for Russian evasion”, by verifying customers’ identities and submitting reports to the Treasury Department about transactions, for example.
In Senate hearings on “Understanding the Role of Digital Assets in Illicit Finance”, held on 15th March, various experts were called to give their view on how crypto is being used to evade sanctions on Russia. The evidence, however, was mixed – displaying a clear split in both the understanding and viewpoint of whether crypto is helpful or harmful.
Senator Sherod Brown, the Chairman of the Senate Committee on Banking, argued that crypto can be used to make it easier to commit crimes – including evading Russian sanctions and noted the Justice Department’s view, from October 2020, that “cryptocurrency technology plays a role in many of the most significant criminal and national security threats that the United States faces.”
He brought attention to “chain hopping” where money can be laundered by moving from one crypto ecosystem to another. This, as well as the role of “mixers”, where funds can be mixed with others for the purposes of money laundering, was put to Jonathan Levin, Co-Founder and Chief Strategy Officer, at blockchain analysis firm Chainalysis.
He argued that these methods would be impractical for an oligarch with US$1bn to launder, especially as the total value of mixing services currently available, on a global basis, total US$30m. Despite Warren’s view that crypto makes it easier for illicit activity, the other view is that the funds are more traceable because of the nature of blockchain technology; Chainalysis has been able to trace illicit funds in such mixers. Besides, it is likely that sanctioned Russians have been preparing for this scenario for months and have already moved their funds, according to Chainalysis.
Despite the attention being drawn to crypto as a means of evading sanctions, so far there has not been any evidence presented that demonstrates this has actually occurred. Senator Patrick Toomey, as part of the hearings, stated, “According to administration officials across multiple agencies, there is simply no evidence of cryptocurrencies being used by Russia to evade sanctions in any significant way.” He quoted FBI Director Christopher Wray who said that “the Russians’ ability to circumvent the sanctions with cryptocurrency is probably highly overestimated.”
Toomey continued: “The facts are clear and as the administration has found: Russia cannot meaningfully use cryptocurrencies to evade sanctions. While there has been virtually no evidence of Russia meaningfully using cryptocurrencies to evade sanctions, Ukraine has been actively utilising cryptocurrencies to do tremendous good.”
This point was brought home by the evidence of Michael Chobanian, founder of Ukraine’s Kuna Exchange and President of the Blockchain Association of Ukraine. He explained how crypto was able to address the need for urgent cash, with millions raised for Ukraine’s war effort in an account that took ten minutes to set up, without any bureaucracy.
Michael Mosier, previously Acting Director, and Deputy Director/Digital Innovation Officer at FinCEN, and Counselor to the Deputy Secretary of the Treasury, in his testimony said, “If every new technology is viewed with suspicion, we risk harming the citizens we’ve sworn to protect.” He later added, “Cryptocurrencies, like the cryptography with which they are built, can be used in crime, but we’d be naive to think they are not also powerful tools to empower and protect the innocent.”