New EO Includes Measures to Study, Combat Use of Crypto in Sanctions Evasion
President Joe Biden issued an executive order March 9 that will require several agencies to study how cryptocurrency can be used to evade sanctions. The order, part of a “priority effort” underway by the administration to counter illegal uses of virtual currencies, comes amid concerns from lawmakers that Russia could turn to cryptocurrency to evade U.S. and global financial restrictions (see 2203030047).
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The order will require U.S. agencies to assess how digital currencies can be used as a “tool to circumvent U.S. and foreign financial sanctions regimes.” Criminals are already exploiting the "insufficiency of international implementation of anti-money laundering” networks, a senior administration official told reporters during a March 8 call, adding that most current digital asset systems weren’t designed with sanctions screening in mind. The Treasury Department last year released guidance meant to help the virtual currency industry comply with U.S. sanctions (see 2110150069).
Within 180 days of the order, the Treasury, State and Commerce departments, along with several other agencies, must submit a report on the “potential implications” of digital currencies on “national security and financial crime.” The report also must include an “analysis of illicit financing risks, sanctions risks, other law enforcement and national security interests, and implications for human rights.”
The White House released the order one day after being asked by Republicans on the House Foreign Affairs Committee to work with allies to ensure Russia doesn't use digital currencies to evade sanctions. The lawmakers, led by the committee's top Republican, Michael McCaul of Texas, said in a March 8 letter that the U.S. needs to "close potential gaps in sanctions measures and ensure digital asset trading platforms are fully complying with sanctions." They asked the administration to describe any discussions it has had with digital asset trading platforms about sanctions compliance and whether the administration needs more resources from Congress.
Although cryptocurrencies may be used to evade some U.S. sanctions, administration officials said they don’t believe Russia can realistically turn to digital currencies to prop up its economy. The U.S. has sanctioned much of Russia’s financial sector since it invaded Ukraine, including the Russian Central Bank (see 2202280043). The currencies aren’t a “viable workaround to the set of financial sanctions we’ve imposed across the entire Russian economy and, in particular, to its central bank,” the administration official said.
But the official stressed that the U.S. will continue to monitor Russia’s efforts. “The administration will continue to aggressively combat the misuse of cryptocurrency, including the use of it to evade U.S. sanctions,” the official said. “And that stance equally applies to the Russia-Ukraine crisis, as it does to any other nation or regime or non-state actor that seeks to undermine U.S. national security.”