Congress pushes State Department for information on costs, benefits of crypto

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

The Russia Cryptocurrency Transparency Act passed the House on Tuesday and moved to the Senate, where it is currently in committee. The bill covers several topics that have gained attention since Russia’s invasion of Ukraine.

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

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

The bill also asks 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,” an anti-terrorism program that rewards individuals for information on 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 used as opposed to fiat currencies and traditional payment methods.

A new diplomatic point person on crypto assets

Under the bill, the State Department would be required 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 mask the origin of transactions and facilitate sanctions evasion,” Meeks said.

The notion of whether cryptocurrencies can be used to evade sanctions has been an ongoing debate since the start of the war. While lawmakers, especially on the political left, have argued that crypto plays a significant role in illicit financial activities, digital asset advocates counter that crypto’s transparent nature makes this nearly impossible on a large scale.

“I want to quote my successor as adviser to the deputy head of the Treasury, who recently said ‘you can’t flip a switch overnight and run a G20 economy on cryptocurrency, it’s just not the liquidity,'” Michael Mosier, former acting director and current deputy director and digital innovation officer for the Financial Crimes Enforcement Network (FinCEN), said during a congressional hearing in March.

Also on Tuesday, as the Russia Cryptocurrency Transparency Act passed the House, the Senate heard from Elizabeth Rosenberg, assistant secretary for terrorist financing and economic crimes, and Andrew Adams, director of the Justice Department’s KleptoCapture task force. The hearing, held by the Banking, Housing and Urban Affairs Committee, touched on how cryptocurrency mixing services can be used in sanctions evasion.

“When [sanctions] can act as a deterrent to any criminal who would try to use a mixer to launder their money – the funds from the proceeds of corruption or other criminal activity – it is an effective way we can use to signal that we cannot tolerate money laundering, said Rosenberg. “Whether it’s for a Russian criminal actor, an Iranian, a North Korean, or wherever they’re from.”

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