WASHINGTON — As the United States seeks 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 circumvent sanctions using digital currencies. It aims to force companies to choose between doing business in the United States or with sanctioned individuals and entities by threatening secondary sanctions on foreign crypto exchanges.
Warren and the chairs of three key Senate committees raised the issue with Treasury Secretary Janet Yellen last week, when they asked for details about the Treasury Department’s enforcement of industry compliance with Russian sanctions.
“Strict enforcement of sanctions compliance in the cryptocurrency industry is essential given that digital assets, which allow entities to circumvent the traditional financial system, can increasingly be used as a tool to evade sanctions,” 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 on President Vladimir Putin and wealthy members of his inner circle.
While the administration has the power to unilaterally impose crypto sanctions, Warren’s bill could be used to apply pressure, just as Congress has intensified calls for President Joe Biden to ban imports of Russian oil.
Lawmakers on both sides of the aisle are concerned that cryptocurrency will emerge as a workaround to existing sanctions.
“Cryptocurrency is coming in here,” Sen. Lindsey Graham, R.S.C., said last week after a classified briefing on Ukraine. “While you sanction the [Russian] central bank, which is a good thing, I worry about how cryptocurrency could be used by 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 difficult to evade our sanctions without being detected,” the official said. “While there are deficient exchanges that might be willing to offer services to sanctioned individuals and entities, they will not be able to sustain a great economy.
“Treasury has significantly increased its ability to track virtual currency transactions through partnerships across the [federal government] and with the private sector,” the official added.
One of the draft provisions of Warren’s proposal would aim to make it easier to verify the identity 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 has also published a notice to financial institutions on Monday on attempts to evade sanctions while noting that cryptocurrency has not become a major concern.
“While 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 reads.
Other countries hit hard by sanctions have used cryptocurrency to circumvent the effects of punitive financial measures, according to multiple reports. North Korea partly funded its missile program with stolen cryptocurrency, according to a UN report, while another study found that Iran had been mining cryptocurrencies to help offset sanctions.
Julie Tsirkin and Frank Thorp V contributed.