Yellen Says Treasury Will Monitor Crypto, Other Channels for Sanctions Evasion

In response to a letter from four Senate Democrats raising concerns about cryptocurrencies' potential use by Russia to avoid sanctions, Treasury Secretary Janet Yellen has said that the U.S. will monitor the situation.

“We will continue to look at how the sanctions work and evaluate whether or not there are leakages, and we have the possibility to address them,” she told a crowd at the University of Illinois Chicago.

But by the sounds of things, she's not too concerned. “I often hear cryptocurrency mentioned, and that is a channel to be watched,” she said, before adding: “It’s not that that sector is completely one where things can be evaded." 

In their letter to Yellen, Senate Democrats—including Elizabeth Warren, Mark Warner, Jack Reed and Banking Committee Chair Sherrod Brown—stated: "Strong enforcement of sanctions compliance in the cryptocurrency industry is critical given that digital assets, which allow entities to bypass the traditional financial system, may increasingly be used as a tool for sanctions evasion."

The letter went on to ask if the Treasury Department's Office of Foreign Asset Controls would work with financial institutions and other countries to ensure crypto isn't used in such a way.

To be clear, exchanges, custodians and other crypto companies and individuals operating within the U.S. are already beholden to sanctions levied by the federal government. Just ask BitMEX co-founders Arthur Hayes and Benjamin Delo, who recently pled guilty to violating the U.S. Bank Secrecy Act and could face up to five years in prison each along with fines of $10 million. A press release from the U.S. Attorney's Office notes that BitMEX, which allegedly did not institute appropriate anti-money laundering or know-your-customer programs on the platform, was a "vehicle for sanctions violations."

Many major exchanges have attested that they are complying with applicable sanctions against Russia—though they refused a request from the Ukraine Minister of Digital Transformation, Mykhailo Fedorov, "to block addresses of Russian users."

In a statement to Decrypt on February 28, a spokesperson for Binance said the exchange was "taking the steps necessary to ensure we take action against those that have had sanctions levied against them while minimizing impact to innocent users." It added: "Should the international community widen those sanctions further, we will apply those aggressively as well.”

Coinbase told Decrypt it was taking "a number of actions to ensure compliance with the latest sanctions," including regularly screening sanction watchlists and blocking transactions to prohibited addresses identified by OFAC and others.

In a Twitter thread Tuesday, Blockchain Association Head of Policy Jake Chervinsky challenged the argument that Russia could easily bypass sanctions using Bitcoin and other cryptocurrencies. Wrote Chervinsky, "US crypto companies offer a variety of services. Russia doesn't get to use them anymore. That's the sanction, just as with all US goods & services. Russia's ability to use the underlying technology doesn't let them 'evade' the sanction in any way."

He also argued that the crypto markets are too small—and public blockchains too transparent—to be effective for Russia to evade sanctions.

"Concerns about crypto's use for sanctions evasion," he said, "are totally unfounded."