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Russian President Vladimir Putin could use cryptocurrencies to circumvent U.S. and other sanctions imposed on the Kremlin for its unprovoked invasion of Ukraine, a Treasury Department official told lawmakers on Tuesday.
“Yes, Senator, it is possible,” said Elizabeth Rosenberg, Assistant Secretary of the Treasury Department for Terrorist Financing and Financial Crimes, when Sen. Elizabeth Warren, D-Mass., asked her if digital assets could be used to circumvent sanctions.
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The Senate Committee on Banking, Housing and Urban Affairs convened the hearing to discuss next steps to deter Russia’s ongoing aggression against Ukraine, such as the seizure of assets from Russian oligarchs and the G7 deal to cap Russian oil prices.
Warren said she was concerned about the possibility of cryptocurrencies being used by Russian elites to evade sanctions since the country invaded in February.
“Back then, we already knew that countries like North Korea had used crypto to circumvent sanctions and launder at least hundreds of millions of dollars. And Russia could easily be a part of that,” Warren said.
The Ministry of Finance has already identified Russian companies trying to circumvent sanctions using crypto. Twenty-two individuals and two entities, including a neo-Nazi paramilitary group, were identified this month to help Russia digitally finance the war against Ukraine.
In April, the agency, along with oligarch Konstantin Malofeyev, privately owned commercial bank Public Joint Stock Company Transkapitalbank and 40 other individuals and organizations led by Malofeyev, first targeted a virtual currency mining agency.
Russia-based darknet market Hydra and Garantex, a virtual currency exchange, were also sanctioned this month, in part to cut off opportunities for potential sanctions evasion.
The US government blocked access to all of its assets located in the US or held by someone who is a US Treasury resident, and also blocked transactions between sanctioned individuals and individuals within the United States
But Russia was planning ahead by developing its own digital currency back in February, hoping to be able to trade directly with countries that accept the funds without first converting them to dollars. The country has also developed tools to obfuscate the origins of transactions, as crypto exchanges can be tracked on the underlying blockchain.
Rosenberg acknowledged that anonymity-enhancing technologies and other tools used to hide digital transactions can interfere with sanctions enforcement. The Treasury imposed its first-ever sanctions on these “mixers” in May and sanctioned another, “Tornado Cash,” in August.
Warren mentioned that Coinbase, a leading US cryptocurrency exchange platform, filed a lawsuit against the Treasury Department this month on behalf of Tornado Cash users.
Coinbase Chief Legal Officer Paul Grewal told CNBC that the sanctions set “a dangerous precedent,” but Rosenberg called them effective.
“If they can serve as a deterrent to any criminal (who) would attempt to use a blender to launder his funds, the proceeds of corruption or criminal activity, that is an effective way we can use to signal that we do not tolerate money laundering,” Rosenberg said.