Earlier today, Senators Elizabeth Warren (D-MA), Jack Reed (D-RI), Mark Warner (D-VA) and several of their colleagues introduced the Digital Asset Sanctions Compliance Enhancement Act of 2022. The bill is aimed at cracking down on the Russian elites using bitcoin and other digital assets to evade sanctions imposed as a result of the invasion of Ukraine. At a congressional hearing earlier this month, Sen. Warren warned that “millions of transactions are taking place that are completely unregulated with no one verifying who gets what” and that “while sanctions can make it very difficult for Russian companies, political leaders, and billionaires to move money around in the traditional financial system, there is another shadow, unregulated world that they can turn to.”
Among other provisions, the bill would:
- Give the president the authority to apply secondary sanctions to foreign exchanges that do business with sanctioned people, companies or government entities – which would force those foreign exchanges to choose between doing business with the United States or sanctioned Russians.
- Grant the Treasury Department the authority to prohibit cryptocurrency exchanges under U.S. jurisdiction from processing transactions involving addresses affiliated with Russians.
- Require U.S. taxpayers engaged in transactions of more than $10,000 worth of cryptocurrency offshore to report those holdings to the Treasury Department’s Financial Crimes Enforcement Network.
Within 90 days of enactment of the bill, the president would submit a report to Congress identifying any foreign person who operates a crypto exchange or otherwise facilitates digital asset transactions and who has also supported sanctions evasion by Russian individuals named to the Office of Foreign Asset Control's (OFAC) sanctions list. The President could sanction these exchange operators under the International Emergency Economic Powers Act – unless there was a national security interest in not doing so.
The Department of the Treasury would be allowed to prohibit crypto exchanges operating in the U.S. from conducting transactions for, or otherwise work with, crypto addresses belonging to people based in Russia if this is deemed to be in the national interest. The Secretary of the Treasury would have to report to Congress about this decision within 90 days.
Finally, within 90 days of enactment of the bill, U.S. taxpayers would be required to report to the Financial Crimes Enforcement Network (FinCEN) about any offshore digital asset transactions greater than $10,000. The Secretary of the Treasury would also have to submit a report to Congress – and make publicly available – any digital asset trading platforms that OFAC determines to be high risk for sanctions evasion, money laundering or other illicit activities.
Sen. Warren has raised concerns with the cryptocurrency industry and has called for stronger regulation of the crypto market to ensure that countries, drug traffickers, cyber criminals and tax cheats can’t evade economic consequences. While the cryptocurrency industry is responsible for enforcing sanctions, Sen. Warren has regularly criticized many crypto exchanges and wallets for not collecting information about the identities of their customers, screening their platforms for illicit activity or reporting sanctions violations.
The cryptocurrency and digital assets industry has argued that it would be difficult for an oligarch to hide even relatively small sums of money because of the different blockchain tracking tools that exist. And as such, any form of digital asset on the blockchain is highly traceable.
In addition to Sen. Warren, the bill is co-sponsored by seven Democratic Senators. A companion bill in the House will be introduced by Rep. Brad Sherman (D-CA).
Buchanan’s government relations professionals continue to closely monitor the Digital Asset Sanctions Compliance Enhancement Act of 2022 along with policies, rules and regulations impacting digital assets, including cryptocurrency. To learn more about how and why your voice should be heard in shaping these and other federally regulated issues, connect with our Federal Government Relations Group or subscribe to additional Federal Government Relations updates here.