A group of lawmakers on Wednesday asked the Biden administration whether they needed additional tools to ensure malign actors aren’t evading U.S. and multilateral sanctions on Russia by using virtual currencies.
“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,” Sens. Elizabeth Warren (Mass.), Mark Warner (Va.), Jack Reed (R.I.) and Sherrod Brown (Ohio) said in a letter to Treasury Secretary Janet Yellen.
The letter added that “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.”
Sanctions imposed by the U.S. and the rest of the world have severely curtailed Russia’s ability to do business, crushing the value of Russian currency and shuttering its stock market. But some have speculated that cryptocurrencies — speculative assets that purport to be an alternative to government-backed currency — could give Russia a way to mitigate the sanctions, since cryptocurrencies like Bitcoin are traded outside of the traditional banking system.
It’s not just Democrats concerned about the possibility of a crypto end-around.
“I want to find out how it’s been used by the Russians,” Sen. Lindsey Graham (R-S.C.) told HuffPost, after saying earlier this week that cryptocurrency has been “rearing its ugly head” in Russia.
Other Republicans sounded more skeptical of a crypto sanctions problem, suggesting their effect may be negligible.
“I don’t think that it’s all that plausible for the Russian government to be able to evade sanctions on a significant scale with crypto right now,” Sen. Pat Toomey (R-Pa.), the top Republican on the Senate Banking Committee, said.
The topic also came up in a House hearing on Wednesday with Federal Reserve Chair Jerome Powell, where Democrats asked Powell how much of a problem crypto might be for sanctions.
“It is past time for all of us to lead on creating a regulatory environment in which we, rather than the world’s despots, terrorists and money launderers benefit from the emergence of cryptocurrency,” Rep. Jim Himes (D-Conn.) said.
Powell said he didn’t know whether cryptocurrency offered Russia a sanction workaround, but that it was a possibility Congress should address.
“It underscores the need really for congressional action on digital finance, including crypto currencies,” Powell told the House Financial Services Committee. “We have this burgeoning industry which has many many parts to it and there isn’t in place the kind of regulatory framework that needs to be there.”
Sen. Debbie Stabenow (D-Mich.), chair of the Senate Agriculture Committee, which oversees the Commodity Futures Trading Commission, one of the agencies with some regulatory authority over the crypto industry, said Congress should “close loopholes” to protect American consumers from being defrauded. But she said Congress shouldn’t act in an ad hoc way because of the war in Ukraine.
“What we need is a structure for transparency and oversight and accountability,” Stabenow told HuffPost.
Congress imposed tax reporting requirements on some players in the crypto industry last year to help pay for roads and bridges in a bipartisan infrastructure bill. The industry lobbied hard against the new rules but ultimately lost. Since then, the industry has ramped up its investment in lobbying.
“The number of people that came out of the woodwork trying to beat us up for doing that was amazing,” Warner said.