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Congress presses State Department on information on costs and benefits of crypto

  • Congress is moving forward with the Russia Cryptocurrency Transparency Act
  • Lawmakers want to know when, why and how the State Department is using crypto to reward whistleblowers

As the war in Ukraine rages on, Congress is keen to find out what role cryptocurrencies have played in the conflict over the past seven months.

The Russia Cryptocurrency Transparency Act passed the House of Representatives on Tuesday and moved to the Senate, where it is currently in committee. The bill addresses several issues that have attracted attention since Russia invaded Ukraine.

“The need to starve Valdimir Putin of funds for Russia’s illegal war in Ukraine has renewed focus on the role cryptocurrencies can potentially play in money laundering and sanctions evasion,” said bill sponsor Rep. Gregory Meeks , DN.Y., in a statement after the legislature passed the House.

The bill would require the State Department to submit a report to Congress detailing how “cryptocurrencies or other blockchain technologies” have been used to promote economic development and provide humanitarian assistance to Ukraine, according to the current draft . It will also ask the Treasury and State Departments to prepare a report on how cryptos impact the effectiveness and enforcement of sanctions against Russia.

The bill also requires the Secretary of State to notify certain congressional committees at least 15 days before making a payment in crypto under its Rewards for Justice Program, a counterterrorism program that rewards individuals for information about illegal activity.

The State Department said in 2021 that some rewards could be paid in cryptocurrencies, but with this new bill, Congress will want an explanation of why digital assets are being used as opposed to fiat currencies and traditional payment methods.

A new diplomatic contact for cryptoassets

According to the bill, the State Department would have to appoint a new role: the director of digital currency security.

“While there are legitimate and valuable use cases for cryptocurrencies, some digital asset products can be used to obfuscate the origins of transactions and facilitate sanctions evasion,” Meeks said.

The notion of whether cryptocurrencies can be used to circumvent sanctions has been an ongoing debate since the war began. While lawmakers, particularly those on the political left, have argued that cryptos play a significant role in illicit financial activity, proponents of digital assets counter that crypto’s transparency makes this nearly impossible at scale.

“I’ll quote my successor as Advisor to the Deputy Treasury Secretary who recently said, ‘You can’t flip a switch overnight and run a G20 cryptocurrency economy, there just isn’t the liquidity,'” Michael Mosier, former Acting Director and current Deputy Director and Digital Innovation Commissioner for the Financial Crimes Enforcement Network (FinCEN), during a March congressional hearing.

Also on Tuesday, as Russia’s Cryptocurrency Transparency Act passed the House of Representatives, the Senate heard from Elizabeth Rosenberg, Assistant Secretary for Terrorist Financing and Financial Crimes, and Andrew Adams, Director of the KleptoCapture Task Force at the Justice Department. The hearing, held by the Banking, Housing and Municipal Affairs Committee, touched on how cryptocurrency blending services can be used to circumvent sanctions.

“When [sanctions] can serve as a deterrent to any criminal attempting to use a mixer to launder their funds – the funds derived from the proceeds of corruption or other criminal activity – this is an effective way we can use to signal that we are doing so cannot tolerate money laundering,” Rosenberg said. “Whether for a Russian criminal, an Iranian, a North Korean, or wherever they may be from.”


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  • Casey Wagner

    blocks

    Elderly reporter

    Casey Wagner is a New York-based business journalist covering regulation, legislation, digital asset investment firms, market structures, central banks and governments, and CBDCs. Before joining Blockworks, she covered markets for Bloomberg News. She graduated from the University of Virginia with a degree in media studies. Contact Casey via email at [email protected]

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