Treasury Department Russia avoid sanctions using crypto

Russian President Vladimir Putin may use cryptocurrencies to evade US and other sanctions against the Kremlin over its unprovoked invasion of Ukraine, a finance minister told lawmakers on Tuesday.

“Yes, senator, it is possible,” Elizabeth Rosenberg, the Treasury secretary’s assistant secretary for terrorist financing and financial crimes, said when Sen. Elizabeth Warren, D-Mass., asked her if digital assets could be used to evade sanctions.

The Senate Banking, Housing and Urban Affairs Committee called the hearing to discuss the next steps for deterrents against Russia’s continued aggression against Ukraine, such as the seizure of assets from Russian oligarchs and the G7 agreement to cap the price of Russian oil.

Warren said she had been concerned about the possibility of cryptocurrency being used by Russian elites to circumvent sanctions since the country invaded in February.

“At the time, we already knew that countries like North Korea had been using crypto to skirt sanctions and launder at least hundreds of millions of dollars. And Russia could easily be part of that,” Warren said.

The Treasury Department has already identified Russian entities attempting to circumvent sanctions with crypto. Twenty-two people and two entities, including a neo-Nazi paramilitary group, were singled out this month for digitally helping Russia finance its war against Ukraine.

In April, the agency targeted a virtual currency mining agency for the first time, along with oligarch Konstantin Malofeyev, the privately owned commercial bank Public Joint Stock Company Transkapitalbank and 40 other individuals and entities headed by Malofeyev.

Russia-based Darknet Market Hydra and Garantex, a virtual currency exchange, were also sanctioned that month, in part to cut off opportunities for potential sanctions evasion.

The U.S. government blocked access to all their assets based in the U.S. or held by a resident of the U.S. Treasury, also blocked transactions between those sanctioned and with anyone in the U.S.

But Russia planned ahead by developing its own digital currency as early as February in hopes of trading directly with countries that will accept the funds without first converting to dollars. The country also developed tools to mask the origin of transactions since crypto exchanges are traceable to the underlying blockchain.

Rosenberg confirmed that anonymity-enhancing technologies and other tools used to hide digital transactions can interfere with sanctions enforcement. Treasury issued its first ever sanctions against these “mixers” in May and sanctioned another, “Tornado Cash,” in August.

Warren mentioned that Coinbase, a leading US cryptocurrency exchange platform, filed a lawsuit this month against the Treasury Department on behalf of Tornado Cash users.

Coinbase’s chief legal officer, Paul Grewal, told CNBC that the sanctions set “a dangerous precedent,” but Rosenberg called them effective.

“When they can act as a deterrent to any criminal (who) would try to use a mixer to launder their money, the proceeds of corruption or criminal activity, that is an effective avenue that we can use to signal that we cannot tolerate money laundering, Rosenberg said.