Crypto Has an Iran-Shaped Problem – POLITICO

With help from Derek Robertson

How are governments going to stop crypto from being used to circumvent the rules?

It’s a growing point of tension as regulators increasingly focus on the technology. An example is the continued fallout from Treasury Department Sanctions by Tornado Cash, a decentralized protocol that hides the origin of crypto-tokens. The last few days it is news about an arrest of a suspected Tornado Cash developer in the Netherlands and a potential legal challenge to the sanctions in Washington.

But the ongoing hubbub has distracted from another development with implications for crypto compliance: Iran appears to be openly using cryptocurrency to avoid US sanctions.

Last week, a state-linked media outlet in Iran cited a tweet from a senior trader, reported that the country’s government had bought 10 million dollars worth of imports using cryptocurrency, with plans to make wider use of crypto and smart contracts by the end of September. Exchanging value over a cryptocurrency network allows Iran to bypass the traditional banking system, where unauthorized international transactions would be blocked.

To make sense of the news, I reached out to Richard Goldberg, a former National Security Council member on the Iran desk, now a senior adviser to the Washington think tank the Foundation for Defense of Democracies, which supports a hard line against Iran.

This is not the first time crypto has been used to avoid sanctions. What makes this development different?

“This is the most direct violation of US sanctions by a cryptocurrency-using regime to date,” Goldberg said.

If you’re trying to avoid sanctions, what’s the point of advertising that you’re doing it?

“As a test case,” he said. “They want to see, what does the United States do in response? What is Europe doing in response?”

Why now?

Goldberg said that in recent months, in the midst of uncertainty on the future operation of US-Iran relations, he has observed increased efforts by Iran’s government to position itself to cope with sanctions in the long term.

Rising oil prices, as well as some relaxation of sanctions As the Biden administration explores reinstating the nuclear deal abandoned under Donald Trump, it has given Iran’s government breathing space to roll back subsidies on some industries ravaged by sanctions, he said.

Cryptocurrency offers another potential tool in its economic battle with the United States and its allies.

What does this mean for the industry?

As the Tornado Cash sanctions show, the Treasury Department is already stepping up crypto-related enforcement. Last month, the New York Times reported that the Treasury is investigating crypto exchange Kraken for possible violations of Iran sanctions, with a fine likely.

Goldberg, who also hosts one crypto-themed podcast, “Cryptonite,” expects the Iran news to only add to the Treasury Department’s resolve. As a result, he predicts that crypto companies will have to invest much more in the kind of compliance programs found at other major financial institutions.

“I’m sure they have enough money that they will find various technicalities to curb” sanctions evasion, he said. “They won’t be able to eliminate, but they can mitigate.”

The more money that flows into the development of the metaversethe more traditional institutions are paying attention – including the Commodity Futures Trading Commission, one of the commissioners of which, Caroline Pham, appeared on a panel yesterday hosted by the Technology Policy Institute entitled “Are the Metaverse and Web 3.0 Real or Hype and What are the Policy Issues ?”

Pham demonstrated that as nascent as the technology is, top regulators are watching it closely (though, as she noted, she was speaking for herself and not on behalf of the CFTC). Regarding the potential entanglement of crypto and the metaverse, she said that “Web3, I think, would unlock its full potential” in creating a lasting sense of digital real estate; regarding safety and regulation in the metaverse, she voiced the well-known concern on the Hill about the potential for new forms of harassment. The discussion even reached into the geopolitical realm, with Pham saying she is “very concerned” about the national security risks of non-governmental societies springing up in virtual worlds, armed with their own currencies.

She also went back and forth with crypto-skeptic American University professor Hilary Allen, defending the agency’s track record in regulating crypto, especially amid a widespread belief that the industry would rather deal with her agency than the SEC, perceived as more persistent and crypto-sceptic. itself.

Noting that the CFTC has already brought more than 50 enforcement actions against crypto companies, she said that “anyone who thinks the CFTC is going to take a light touch on regulation” is mistaking its mandate to promote “responsible innovation” for a laissez faire approach. — Derek Robertson

Emptying (or not) of a losing campaign’s bank account tells a story: Who needs, or wants, to be paid back, and whether a candidate keeps any gold in the vault for future ambitions.

When outgoing Rep. Madison Cawthorn (RN.C.) published her final disclosure, it contained a uniquely telling detail. The extremely online 27-year-old, who lost the Republican primary for his seat in May, remains currently holding somewhere between $150,000 and $350,000 in the Ethereum cryptocurrency, as well as an undetermined amount of Let’s Go Brandon Coin – an anti-Biden “meme coin” which began trading last November and even attempted (unsuccessfully) to sponsor a NASCAR driver of the same name.

Presumably, Cawthorn’s campaign has taken a bath on its ether holdings like everyone else, even if the coin experienced a little rally this month. Regarding Let’s Go Brandon Coin: Most crypto platforms stopped tracking it many months ago, when its value dropped to minuscule fractions of a penny from an all-time high of… well, minuscule fractions of a penny. (Earlier this year, Cawthorn was the subject of a cryptoworld investigation into whether he engineered one the pump-and-dump scheme for the largely worthless coin).

Cawthorn’s campaign ending with some still in the coffers is, if nothing else, a reminder of the fervent period in late 2021 and early 2022, when every two Super Bowl commercial promised a path to crypto riches and viral videos of “Let’s Go Brandon” chants abounded. Cawthorn now finds that, like many other crypto players, he gets off the roller coaster with his pockets a little lighter. — Derek Robertson

Keep in touch with the whole team: Ben Schreckinger ([email protected]); Derek Robertson ([email protected]); Konstantin Kakaes ([email protected]); and Heidi Vogt ([email protected]). follow us @DigitalFuture on Twitter.

Ben Schreckinger covers technology, finance and politics for POLITICO; he is a cryptocurrency investor.

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