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Four U.S. senators want Treasury Secretary Janet L. Yellen to explain how her department plans to get cryptocurrency companies and other digital-asset middlemen to do their part in enforcing economic sanctions against Russia.
In a letter on Wednesday, four Democrats — Elizabeth Warren of Massachusetts, Mark Warner of Virginia, Sherrod Brown of Ohio and Jack Reed of Rhode Island — also asked whether decentralized financial structures that operate without any middlemen at all were hindering sanctions enforcement.
“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,” wrote the lawmakers, all members of the Senate Banking Committee.
In response to Russia’s military assault on Ukraine, Western countries and global companies like Apple, BP and Shell have imposed a slew of restrictions. Some Russian banks have been blocked from SWIFT, the communications system that eases cross-border bank transfers, and transactions with Russia’s central bank have also been barred.
But there is growing concern that Russia could turn to digital assets like cryptocurrencies or its own digital ruble to ease the pressure of these restrictions. A 2021 Treasury report highlighted the expanding digital asset marketplace as a potential problem for governments hoping to change rogue countries’ behaviors by punishing them economically. And last week, The New York Times described the many cryptocurrency tools available to Russian entities that want to keep making deals without involving the traditional banking industry.
“These reports are even more troubling because of analyses that suggest that the cryptocurrency industry may not be fulfilling its responsibility to comply with U.S. sanctions,” the senators wrote.
A Treasury spokesman did not respond to a message seeking comment on Wednesday.
Cryptocurrency trading involving rubles has jumped since the United States and many of its allies imposed sanctions, according to the crypto tracking firms Chainalysis and Kaiko. But the significance of the increase is unclear: It could suggest that affected Russian entities are converting wealth into cryptocurrency, but it’s also possible that ordinary Russians are turning to the technology to preserve their savings as the value of the ruble plummets.
Major crypto exchanges, including Binance and FTX, have pledged to comply with U.S. sanctions, but the industry has resisted calls from the Ukrainian government to freeze all Russians’ access to cryptocurrency. The United States has not asked the companies to take such an action.
“Our mission is better served by focusing on individual needs above those of any government or political faction,” Jesse Powell, the chief executive of the crypto exchange Kraken, wrote on Twitter this week. Cryptocurrencies, he said, are “a weapon for peace, not for war.”
Experts have warned that Russia has been preparing to counteract sanctions by developing new tools to mask the source of crypto trades. State-backed hackers could also take digital assets hostage to make up for lost revenue, they said.
The Russia-Ukraine War and the Global Economy
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Gas supplies. Europe gets nearly 40 percent of its natural gas from Russia, and it is likely to be walloped with higher heating bills. Natural gas reserves are running low, and European leaders have accused Russia’s president, Vladimir V. Putin, of reducing supplies to gain a political edge.
Shortages of essential metals. The price of palladium, used in automotive exhaust systems and mobile phones, has been soaring amid fears that Russia, the world’s largest exporter of the metal, could be cut off from global markets. The price of nickel, another key Russian export, has also been rising.
Financial turmoil. Global banks are bracing for the effects of sanctions intended to restrict Russia’s access to foreign capital and limit its ability to process payments in dollars, euros and other currencies crucial for trade. Banks are also on alert for retaliatory cyberattacks by Russia.
But industry executives have argued that such concerns may be overblown, in part because law enforcement agents have shown an increasing ability to track transactions on the blockchain, the public ledger that underlies cryptocurrency. They also point out that crypto markets are small and costly to use, which will make it difficult for Russia to use crypto to get around sanctions aimed at destabilizing the whole economy.
“The inherent characteristics of crypto — transparency, immutability, irreversibility and censorship-proof — don’t lend themselves to financial obfuscation,” said Jorge Pesok, general counsel for the crypto software company Tacen.
The senators asked Ms. Yellen to respond to their questions by March 23.