On March 17th, the U.S. Senate Banking Committee held a hearing titled “Understanding the Role of Digital Assets in Illicit Finance,” which covered a broad range of topics. Issues such as how Russia could use digital assets to avoid sanctions and whether or not they should be allowed to, how Ukraine is using cryptocurrency to support their fight against Russia, and preventing criminal activity through the use of digital assets. In opening statements, Chairman Sherrod Brown expressed his concerns about offshore crypto companies not being subject to the U.S. Laws and abuses of digital assets endangering the financial well-being of the American people. 

Senator Toomey focused on the benefits and some potential risks, while recognizing the need to encourage technological innovation and individual freedom. Toomey stated that the current lack of regulation is encouraging innovation abroad. Russia’s invasion of Ukraine lead to the United States imposing sanctions on Russia, hurting the Russian economy, but not crippling it. While possible, Senator Toomey stated that there is currently no evidence that Russia has used Bitcoin or other cryptocurrencies to avoid sanctions. On the flip side, Bitcoin and cryptocurrency donations have been used to assist Ukraine’s efforts to remain a sovereign nation and fund the war against Russia. Donations through Bitcoin and cryptocurrencies have reached over $100 million (USD value) to supply the Ukrainian army with supplies which have saved soldiers’ lives.

Bitcoin and cryptocurrency can be used for illicit finance, but according to Chainalysis illicit finance transactions account for 0.15% transactions in the network. The on-chain nature of Bitcoin and some other cryptocurrencies allow for traceability that discourages the use for illicit finance.

Mr. Jonathan Levin, co-founder and chief strategy officer of Chainalysis inc. gave his testimony which included short-term and long-term recommendations. Levin’s short term recommendations include authorities using digital asset wallet addresses as identifiers, OFAC sanctioning digital asset exchanges and crypto entities that facilitate sanction evasion, and expanding information sharing. His long-term recommendations include regulators investing in blockchain intelligence and analytics, improving and promoting interagency coordination through the creation of a Virtual Asset Coordination Center, and greater legal clarity over financial digital assets. 

Michael Mosier, former acting Director, Deputy Director/Digital Innovation Officer at FinCEN also gave his testimony on potential regulations involving expansion of the AML and Kleptocracy whistleblower programs, sanction evasion, and encouraged standardization licensing across jurisdictions. 

Shane Stansbury, Senior Lecturing Fellow in Law and Robinson Everett Distinguished Fellow in the Center on Law, Ethics, and National Security at Duke University School of Law also testified that there are challenges that Bitcoin and cryptocurrency present which include deciphering who is responsible for criminal activity, lack of regulation, and the traceability of digital assets. This two hour hearing is a step in the right direction and has regulators looking for the next steps on how to approach the quickly changing landscape of digital assets.  

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