Deputy Secretary of State Jerome Powell said that the issue with Russia “underscores the necessity for meaningful legislative action on digital finance, including cryptocurrency.”
Some United States House of Representatives members, including Federal Reserve Pro Tempore Jerome Powell, have urged legislative action on cryptocurrency in response to debates about Russia possibly circumventing sanctions by using the technology.
In a hearing of the House Financial Services Committee on “Monetary Policy and the State of the Economy” on Wednesday, California Representative Juan Vargas asked Powell if cryptocurrency could be a “way out” for Russia, which has been cut off from the SWIFT payments network as a result of the United States and the European Union’s sanctions against the country. The Fed chairman said that the issue with Russia “underscores the need for really legislative action on digital finance, including cryptocurrencies,” and that the situation with Russia “underscores the need for genuinely congressional action on cryptocurrencies.”
At the hearing, Representative Jim Himes of Connecticut mirrored Powell’s sentiments, praising the success of the sanctions against Russia and calling for more of them. However, he went on to say that the United States’ failure to lead the world in regulatory clarity for cryptocurrencies left the door open to other countries with goals that were not necessarily in the best interests of the United States.
“It is past time for all of us to take the initiative in establishing a regulatory framework in which we, rather than the world’s despots, terrorists, and money launderers, profit from the rise of cryptocurrencies, including a central bank digital currency” Himes said. “It is past time for us to take action.”
President Barack Obama and members of the Senate Banking Committee expressed their concerns to Treasury Secretary Janet Yellen in a letter sent on Wednesday. The letter expressed concern that Russia and other countries could use cryptocurrency to “hide cross-border transactions for nefarious purposes,” such as undermining sanctions. The letter was addressed to Yellen. Among the examples highlighted by the MPs were North Korea’s use of “stolen cryptocurrency” to support its nuclear weapons development and Iran’s promotion of Bitcoin (BTC) mining while being subject to United States economic sanctions.
In a statement, the four senators said that “there are increasing worries that Russia may employ cryptocurrency to escape the wide new sanctions it is facing from the Biden administration and other countries in response to its invasion of Ukraine.” Among the possibilities are the use of dark web marketplaces powered by cryptocurrencies to move funds and conduct transactions; the use of crypto wallets and mixing services that allow sanctioned entities to transfer and hide their wealth; and the introduction of a digital ruble that would allow Russia to conduct international trade without having to convert their currency into dollars.
Legislators wanted to know what efforts the Treasury Department was made to “ensure sanctions compliance by the cryptocurrency business,” according to the Treasury Department. It also suggested that the Department of Treasury’s Office of Foreign Assets Control, or OFAC, was growing more dependent on “voluntary self-disclosure from sanctions violators for enforcement,” a strategy that was “ill-suited” for the cryptocurrency industry, according to the letter.
On Tuesday, the Office of Foreign Assets Control (OFAC) released rules by the Biden administration that cautioned corporations and persons domiciled in the United States against facilitating cryptocurrency transactions made to specified Russian citizens and banks. On the other hand, Senators Warren, Warner, Brown, and Reed are requesting additional clarification from the Treasury Department by March 23 on OFAC’s tools, coordination with foreign governments, and other challenges enforcing sanctions when dealing with cryptocurrencies the Senate Finance Committee.
In their statement, the four senators said that “strong enforcement of sanctions compliance in the cryptocurrency business is vital, given that digital assets, which enable organizations to circumvent the conventional financial system, may increasingly be utilized as a weapon for sanctions evasion.”