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Russian President Vladimir Putin could use cryptocurrencies to evade US and other sanctions leveled at the Kremlin for its unprovoked invasion of Ukraine, a Treasury official told lawmakers on Tuesday.
“Yes, senator, it is possible,” said Elizabeth Rosenberg, assistant secretary of the Treasury for Terrorist Financing and Financial Crimes, when asked by Sen. Elizabeth Warren, D-Mass., if digital assets could be used to circumvent sanctions.
The Senate Banking, Housing, and Urban Affairs Committee convened the hearing to discuss next steps to deter Russia’s continued aggression against Ukraine, such as seizing the assets of Russian oligarchs and appealing of the G-7 to cap the price of Russian oil.
Warren said she has been concerned about the possibility of Russian elites using cryptocurrencies to circumvent sanctions since the country invaded Ukraine in February.
“At the time, we already knew that countries like North Korea had used crypto to circumvent sanctions and launder at least hundreds of millions of dollars. And Russia could easily be one of them,” Warren said.
The Treasury Department has already identified Russian entities attempt to circumvent sanctions with crypto. Twenty-two individuals and two entities, including a neo-Nazi paramilitary group, were designated this month to help Russia digitally finance the war against Ukraine.
In April, the agency targeted a virtual currency mining agency for the first time, together with the oligarch Konstantin Malofeyev, the private commercial bank Public Joint Stock Company Transkapitalbank and 40 other individuals and entities headed by Malofeyev.
Darknet Market Hydra, based in Russia, and Garantex, a virtual currency exchange, were also sanctioned that month in part to cut off opportunities for potential sanctions evasion.
The US government has blocked access to all of their assets based in the United States or held by someone residing in the US Treasury and has also blocked transactions between those who are sanctioned and with anyone in the United States.
But Russia had developed its own digital currency as early as February in hopes of trading directly with countries that will accept the funds without having to first convert them into dollars. The country has also developed tools to hide the origin of transactions since crypto exchanges can be tracked on the underlying blockchain.
Rosenberg confirmed that anonymity-enhancing technologies and other tools used to mask digital transactions can interfere with enforcement of sanctions. The Treasury has published its first sanctions on these “mixers” in May and sanctioned another, “Tornado Cash”, in August.
Warren mentioned that Coinbase, a leading US cryptocurrency exchange, filed a lawsuit this month against the Treasury Department on behalf of Tornado Cash users.
Coinbase Chief Legal Officer Paul Grewal told CNBC the sanctions set “a dangerous precedent,” but Rosenberg called them effective.
“Where they can serve as a deterrent to any criminal (who) would seek to use a blender in order to launder their funds, proceeds of corruption or any criminal activity, this is an effective avenue we can use to report that we cannot tolerate money laundering,” Rosenberg said.