In response to growing concerns, including from US sanctions officials, that Vladimir Putin and his oligarchic allies could use cryptocurrency to hide their financial movements, two bills, one in the House, sponsored by Representative Brad Sherman (D -Calif.), Another in the Senate, sponsored by Sen. Elizabeth Warren (D-Mass.), Would authorize the president to impose financial sanctions on any digital asset trading platform that provides services to a sanctioned Russian person or entity.
The pro-crypto lobby is unhappy and reportedly spent $ 460,000 to oppose the legislation. While the decision to side with Putin and his allies runs the risk of significant damage to the reputation of a thriving industry that is desperately seeking Washington’s legitimacy, it should also serve as a wake-up call to congressional Republicans to stop giving. a pass to cryptographic companies.
“These bills are not aimed at Russian oligarchs, who are not using (and cannot use) crypto to evade sanctions.” declared the policy director of the Blockchain Association, a lobby that represents more than 70 cryptographic platforms. The statement is not true. Cryptocurrency can be used to evade sanctions, and sanctions have always been applied to platforms that deliberately allow or facilitate punishable transactions. In fact, Russian cryptographic abuses are nothing new.
Russia has emerged as a haven for cybercriminals living in the digital decentralized book known as the blockchain, and is now the world’s third-largest cryptocurrency miner. Russia is a hub for “ransomware as a service” providers operating on the dark web, often with the connivance or even support of the Putin regime. Now, as traditional banking compliance programs close the ability of oligarchs to move funds, cryptocurrency platforms are an attractive channel for evasion of sanctions.
Why then does the pro-cryptocurrency lobby so blatantly deny reality and oppose sanctions aimed at putting even more pressure on Putin and his allies?
The banking sector has been able to adapt to this type of legislation over the last two decades. Following the 9/11 attacks, Congress passed legislation blaming the banks for money laundering and terrorist financing that took place under their noses. That, combined with the Treasury Department’s development of financial sanctions authorities and an explosion of congressional-ordered sanctions on banks doing business in places like Iran, has led to massive investment in software, systems, and compliance personnel by industry. financial.
Crypto, however, is still in its infancy. Realizing that laws and regulations that impose onerous standards of transparency and prevent illicit activity on their platforms could alter their market strategy and depress investment, the crypto industry is stepping up efforts to hold them accountable.
So far, part of the attraction for virtual currency users has been the relative anonymity of certain digital assets: the ability to mask identities and move money without government oversight or intervention. That’s why terrorist organizations, cartels, human traffickers, cybercriminals, and common launderers have often sought out Bitcoin and other cryptocurrencies to facilitate their illicit operations.
The Treasury Department is well aware of the challenges of illicit financing presented by cryptocurrencies. Last year, the Treasury issued its first sanctions enforcement guideline for the virtual currency industry and has since targeted wallets and exchanges linked to ransomware attacks. In April, the department imposed sanctions on a cryptocurrency miner in Russia, and last week announced its first sanctions against a “virtual currency mixer,” a technology that makes it even more difficult to track the origin, destination, and counterparties of cryptocurrency transactions. blockchain. .
As the use of cryptocurrency grows, so will the need for stricter rules against money laundering and sanctions against stock exchanges, wallet providers, and other digital asset platforms. In March, President Joe Biden issued an executive order addressing major national security agencies to develop a comprehensive strategy to keep the United States safe and hold our enemies accountable in the evolving digital asset space. Congress, which has historically enacted new sanctions in the face of countless bipartisan threats, should also be part of that process.
It is true that Sherman and Warren’s bills need improvement, including a standard for sanctions to be imposed only if virtual currency platforms know or should be aware of illicit activities in their environment, the same standard that applies to banks. But its overall direction is right and Congress must lead the design of sanctions for the digital asset era, not just with respect to Russia.
Republicans should help their fellow Democrats improve their proposals and put themselves on the right side of policy-making in the face of the crypto national security challenges. As long as Putin’s crimes against humanity continue in Ukraine, no one should get a pass, let alone platforms designed to hide identities and facilitate illicit funding.
Richard Goldberg, a former National Security Council official, is a senior adviser to the Democracy Defense Foundation and hosts “Cryptonite,” a podcast on cryptocurrency policy making.