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Russian President Vladimir Putin could use cryptocurrencies to evade U.S. and other sanctions launched against the Kremlin for its unprovoked invasion of Ukraine, a Treasury official told lawmakers Tuesday.
“Yes, Senator, that’s possible,” said Elizabeth Rosenberg, Treasury’s Assistant Secretary for Terrorist Financing And Financial Crimes, said when Sen. Elizabeth Warren, D-Mass., asked her if digital assets could be used to skirt sanctions.
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The Senate Committee on Banking, Housing and Urban Affairs convened the hearing to discuss the next steps for deterrents against Russia’s continued aggression against Ukraine, such as the seizure of assets from Russian oligarchs and the G7 agreement to cap the price of Russian oil.
Warren said she’d been concerned about the possibility of cryptocurrency being used by Russian elites to bypass sanctions since the country invaded in February.
“Back then we already knew that countries like North Korea had used crypto to skirt sanctions and launder at least hundreds of millions of dollars. And Russia could easily be part of that,” Warren said.
The Treasury Department has already identified Russian entities attempting to circumvent sanctions with crypto. Twenty-two individuals and two entities, including a neo-Nazi paramilitary group, were designated this month for helping Russia digitally finance the war on Ukraine.
In April, the agency targeted a virtual currency mining agency for the first time, along with oligarch Konstantin Malofeyev, privately owned commercial bank Public Joint Stock Company Transkapitalbank and 40 other individuals and entities led by Malofeyev.
Russia-based Darknet Market Hydra and Garantex, a virtual currency exchange, were also sanctioned that month partly to cut off avenues for potential sanctions evasion.
The U.S. government blocked access to all of their assets based in the U.S. or that are held by someone who resides in the U.S. Treasury also blocked transactions between those who are sanctioned and with anyone within the U.S.
But Russia planned ahead by developing its own digital currency as early as February in hopes of trading directly with countries that will accept the funds without first converting to dollars. The country also developed tools to mask the origins of transactions since crypto exchanges can be tracked on the underlying blockchain.
Rosenberg confirmed that anonymity-enhancing technologies and other tools used to hide digital transactions can interfere with sanctions enforcement. Treasury issued its first-ever sanctions on these “mixers” in May and sanctioned another, “Tornado Cash,” in August.
Warren mentioned that Coinbase, a leading U.S. cryptocurrency exchange platform, filed a lawsuit this month against the Treasury Department on behalf of Tornado Cash users.
Coinbase’s chief legal officer, Paul Grewal, told CNBC that the sanctions set “a dangerous precedent,” but Rosenberg called them effective.
“When they can serve as a deterrent to any criminal (who) would seek to use a mixer in order to launder their funds, the proceeds of corruption or any criminal activity, that’s an effective avenue that we can use in order to signal that we cannot tolerate money laundering,” Rosenberg said.