In a letter to Treasury Secretary Janet Yellen, the senators warned that Russia could use so-called dark web marketplaces, crypto wallets and mixing services to conduct transactions, transfer and hide wealth, and to collect revenues from ransomware attacks.
"There are growing concerns that Russia may use cryptocurrencies to circumvent the broad new sanctions it faces from the Biden administration and foreign governments in response to its invasion of Ukraine," wrote Warren, Mark Warner D-Va., Sherrod Brown, D-Ohio, and Jack Reed, D-R.I. "Given the need to ensure the efficacy and integrity of our sanctions program against Russia and other adversaries, we are seeking information on the steps Treasury is taking to enforce sanctions compliance by the cryptocurrency industry,"
"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 senators added.
The senators are concerned that the Treasury's Office of Foreign Assets Control has "not developed sufficiently strong and effective procedures" for enforcement in the crypto industry, despite various Treasury communications suggesting that crypto could be used to fly under the radar of sanctions and regulations, they added.
The Treasury's 2021 sanctions review, released in October, warned that digital assets could "potentially [undermine] the efficacy of our sanctions regime," the senators said. In its national money laundering risk report released Tuesday, the Treasury raised similar concerns, noting in particular that so-called unhosted wallets, which don't rely on a financial services provider, can "limit authorities' collection of and access to information and reduce the effectiveness of preventive measures by financial institutions."
The senators warned that "criminals, rogue states, and other actors may use digital assets and alternative payment platforms as a new means to hide cross-border transactions for nefarious purposes." Roughly three-quarters of all global ransomware revenue in 2021 — or more than $400 million in crypto payments — is estimated to have gone to Russia-affiliated entities, they said, citing a report last month from blockchain-tracking firm Chainalysis.
President Biden announced sweeping sanctions against the Russian banks, companies and individuals last week when he pledged to crush the country's ability to "do business in dollars, Euros, pounds and yen" along with U.S. allies. The sanctions have evolved to include cutting off select Russian banks from the SWIFT global financial messaging system, and blocking the country's central bank from liquidating assets held abroad.
Biden doubled down in his State of the Union address Tuesday night, warning Russian oligarchs that the U.S. will "find and seize your yachts, your luxury apartments, your private jets."
But as U.S. banks put measures in place to comply with the sanctions, the role of crypto exchanges has been less clear. While major crypto companies said Tuesday that they too would block accounts and transactions that may involve sanctioned individuals or entities, they resisted calls from Ukraine to block all Russian users.
--Editing by Emily Kokoll.
Update: This story has been updated with additional commentary from the senators' letter.
For a reprint of this article, please contact reprints@law360.com.
