Yellen: No ‘significant’ Russian crypto sanction evasion found

Protos Artwork Yellen
Protos Artwork Yellen
Listen to this article.

US Treasury Secretary Janet Yellen said Wednesday that no “significant” Russian sanction evasion using cryptocurrency has been detected by federal authorities.

In a separate hearing that day, legislation was introduced that would give President Biden the power to force US-based crypto exchanges to stop doing business with Russian-based users, Law360 reports.

Yellen testified before the House Financial Services Committee that while crypto’s potential for sanction evasion remains a concern, its value in terms of facilitating Russia’s large economy is minimal. The Treasury Secretary made it clear the public nature of blockchains limit the risk of sanction evasion and added that regulations imposed on crypto exchanges provide further transparency.

“We haven’t seen significant evasion through crypto so far, but we’ll monitor carefully and use our authorities that we do have to make sure that this isn’t a major avenue for evasion,” Yellen said.

In March, Russia’s central bank made moves to expedite crypto adoption. Days later, top blockchain analytics firm Chainalysis testified at a US Senate Banking Committee that no material evasion by Putin or his followers had been identified.

Former Financial Crimes Enforcement Network (FinCEN) acting director Michael Mosier also expressed doubts over crypto’s ability to facilitate the scale of transactions a major country like Russia would need to keep its economy running.

Read more: [Russia hypothetically accepts Bitcoin for oil and gas — if you’re its ‘friend’]

On Wednesday, the same day of Yellen’s testimony, President Biden’s administration announced additional Russian sanctions in light of apparent war crimes in Kyiv’s suburb Bucha. Tighter sanctions against Russia’s Sberbank and Alfabank were introduced, along with sanctions against Putin’s inner circle — including his two adult daughters, Maria Vorontsova and Katerina Tikhonova.

And again, on the same day, House Democrats introduced legislation that would allow Biden to force US-based crypto exchanges to stop facilitating transfers for Russian-based users. The bill would further grant the president the ability to sanction overseas exchanges that continue to allow these Russian-based transfers, Law360 reports.

Some major crypto exchanges have been less than willing to impose a ban on Russian users, whether they’d been sanctioned or not. Coinbase and Kraken have both rejected calls to comply, with the former’s chief Brian Armstrong stating “everyone deserves access to basic financial services unless the law says otherwise.”

However, Armstrong clarified that if the US government were to enforce a blanket ban, it would be compelled to follow through.

Crypto sanction evasion has spooked the EU, too

Yellen’s testimony before Congress on Wednesday occurred hot on the heels of growing international action to regulate crypto. Fearing sanction evasion, the European Union has green-lit sweeping cryptocurrency laws that are soon set to pass.

The new rules would compel crypto firms to collect and hand over details of those involved in transfers, including individuals who transact with their customers but may not be users themselves. This is regardless of the size of the transaction.

The EU is also keen to look into regulating “unhosted wallets” (a term for regular, non-custodial crypto addresses) and anonymity-focused cryptocurrencies like Monero and Zcash.

These blockchains provide layers of anonymity that make it difficult for authorities to track illegal activity. In early March, major US think tank Brookings rang alarm bells over the use of Monero and Zcash for evading sanctions.

But the EU’s interest has caused many in the crypto industry to voice their concerns over regulating unhosted wallets, including top exchange Coinbase.

Looking for bite-sized news? We’re on Twitter.

Out now: the first four episodes of our ongoing investigative podcast series Innovated: Blockchain City.