Treasury’s Yellen Urged to Ensure Crypto Isn’t Russia Sanctions Workaround

(Bloomberg) -- A group of key Senate Democrats wants to know more about what the Treasury Department is doing to ensure digital currencies aren't being used to bypass sanctions against Russia.

In a letter to Treasury Secretary Janet Yellen, lawmakers including Elizabeth Warren and Senate Banking Committee Chairman Sherrod Brown raised concerns that some crypto firms may not be complying with new rules, and asked for more details about how regulators are monitoring and enforcing restrictions that the U.S. has imposed on Moscow in response to its invasion of Ukraine.

“There are growing concerns that Russia may use cryptocurrencies to circumvent the broad new sanctions it faces from the Biden administration and foreign governments in response to its invasion of Ukraine,” wrote the group of lawmakers, which also includes Senate Intelligence Committee Chairman Mark Warner and Senate Armed Services Committee Chairman Jack Reed. “We are seeking information on the steps Treasury is taking to enforce sanctions compliance by the cryptocurrency industry.”

The U.S. and its allies have put in place steep sanctions in recent days, including cutting some Russian banks off from the SWIFT messaging system that connects thousands of financial institutions around the world. There have been heightened calls, including from former Secretary of State Hillary Clinton, for the Biden administration to crack down on crypto exchanges to ensure they aren't offering an escape hatch for sanctioned individuals and entities.

The lawmakers pointed out that crypto trading has spiked since the sanctions were announced. Bitcoin, the largest digital currency, has seen significant gains, jumping more than 16% over the past two days. The senators asked for more information about ways Treasury's Office of Foreign Assets Control is working with foreign governments to ensure compliance, and what additional tools officials need.

The White House's National Security Council and the Treasury has already sought help from crypto exchanges on this matter, people with knowledge of the matter previously told Bloomberg. And German Finance Minister Christian Lindner said Wednesday that finance ministers from the Group of Seven and European Union are working together to prevent Russian individuals and organizations from using crypto to circumvent the new restrictions.

Separately, in a hearing before the House Financial Services Committee on Wednesday, lawmakers pressed Federal Reserve Chair Jerome Powell about whether digital assets are being used to dodge sanctions. Powell said he didn't have any “private information,” but said the issue underscores the need for Congress to create a framework to ensure digital tokens aren't used for illicit purposes.