Key Takeaways
The US Treasury Department has put a spotlight on Tether and other stablecoins in the evasion of sanctions by Russia. The lawmakers have highlighted other steps to cut the financing in terrorism.
The development comes right after statements from Russia’s State Duma Working Group on Cryptocurrency Regulation. The group underlined the advancement of the digital ruble in international trade after Russia-tied crypto firms faced sanctions.
The US Treasury Department has raised alarms over crypto’s potential misuse, highlighting the role of stablecoins, particularly Tether, in enabling Russia to sidestep international sanctions. Crypto risks was also underlined before the Committee on Banking, Housing, and Urban Affairs.
Deputy Secretary of the Treasury Wally Adeyemo noted, “As we take steps to cut terrorist groups and other malign actors off from the traditional financial system, we are concerned about the ways these actors are using cryptocurrencies to try and circumvent our sanctions.”
In October 2023, the stablecoin issuer Tether claimed that it locked down at least 32 digital wallets associated with using cryptocurrency to fund terrorism during the Israel-Ukraine conflict. The issuer said in a press release that Tether worked together with Israel’s National Bureau for Counter-Terror Financing to freeze wallets containing $873,118.34.
The Treasury Department outlined several key points regarding the misuse of cryptocurrencies. Apart from being a tool for sanction evasion, the testimony recalled instances, such as al-Qaeda’s exploitation of Bitcoin for money laundering.
The department called for enhanced oversight and enforcement mechanisms to reduce misuse of digital assets by criminals, and rogue states. The Treasury proposed three major reforms to strengthen the regulatory framework around digital currencies.
The first reform introduces a secondary sanctions tool for foreign digital asset providers involved in illicit finance. The second seeks to modernize existing regulations. The suggestion asks to include all major participants and activities within the digital market. The third reform targets the jurisdictional risks posed by offshore cryptocurrency platforms.
The Treasury’s testimony also stressed the necessity for congressional action. Congress can power the department with the tools required to implement the reforms, the testimony noted.
In response, Senator Tim Scott has voiced a critical perspective on the federal government’s approach to cryptocurrencies. He believes crypto is unfairly being blamed for broader issues of illicit finance. Scott sought to broaden the conversation to include the entire ecosystem of illicit finance, suggesting that the focus on cryptocurrency might be overshadowing larger sources of unlawful funding.
He said , “Thankfully, agencies like the Treasury Department already have robust toolkits available, as well as in instances where additional direction is needed, ”
In March, the US Treasury’s Office of Foreign Assets Control (OFAC) expanded its sanctions list to include 13 organizations linked to Russia’s crypto sector. Meanwhile, Russia is charting an international course for its digital ruble amid trade sanctions.
The US Treasury’s focus on Tether and the broader use of cryptocurrencies in sanction evasion and illicit finance is a challenging legislation. Considering the decentralized nature of the crypto market, legislative and regulatory steps in the US alone cannot curb the bad actors.
However, the US can set a course for the rest of the world.