Treasury Official Insists Crypto Mixers Can Obstruct Russian Sanctions

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  • Rus­sia is report­ed­ly draft­ing cryp­to reg­u­la­tions after inter­na­tion­al restrictions
  • The Trea­sury has iden­ti­fied more than 20 Russ­ian enti­ties attempt­ing to evade sanc­tions using crypto

Impos­ing sanc­tions on cryp­tocur­ren­cy mix­ers would help strength­en the US government’s response in pre­vent­ing enti­ties from skirt­ing sanc­tions, accord­ing to a Trea­sury official.

Eliz­a­beth Rosen­berg, assis­tant sec­re­tary for ter­ror­ist financ­ing and finan­cial crimes, said at a Tues­day hear­ing on Rus­sia that adding cryp­to mix­ers like Tor­na­do Cash to its list of Spe­cial­ly Des­ig­nat­ed Nation­als would effec­tive­ly strength­en cur­rent sanctions.

“When [sanc­tions] can serve as a deter­rent to any crim­i­nal that would seek to use a mix­er in order to laun­der their funds — the funds of the pro­ceeds of cor­rup­tion, or oth­er crim­i­nal activ­i­ty — that’s an effec­tive avenue we can use in order to sig­nal that we can­not tol­er­ate mon­ey laun­der­ing. So whether that’s for a Russ­ian crim­i­nal actor, an Iran­ian, a North Kore­an, or wher­ev­er they may come from,” she said.

Rus­sia is report­ed­ly con­sid­er­ing set­ting rules around cross-bor­der sta­ble­coin pay­ments by the end of this year. Prime Min­is­ter Mikhail Mishus­tin believes the finan­cial sys­tem needs a read­just­ment in the face of sanc­tions and restrictions.

When Sen. Eliz­a­beth War­ren asked if it was pos­si­ble for Rus­sia to evade sanc­tions using cryp­tocur­ren­cies, Rosen­berg said it was. Anonymi­ty-enhanc­ing mix­ers, which obscure the trail of funds to con­ceal their ori­gin, are anoth­er point of con­cern for lawmakers.

The effi­ca­cy of pri­va­cy tech­niques, includ­ing mix­ing ser­vices, for mon­ey laun­der­ing was dis­put­ed by co-founder of ana­lyt­ics firm Chainal­y­sis, Jonathan Levin, dur­ing Sen­ate tes­ti­mo­ny in March.

“We have done exten­sive work in track­ing large sums of mon­ey through mix­ers that have led to the arrests of peo­ple and the dis­rup­tion of their activ­i­ties,” Levin told Sen. War­ren, not­ing that glob­al liq­uid­i­ty through mix­ers was too small to allow would-be sanc­tions-evaders to effec­tive­ly obfus­cate funds.

“It is pos­si­ble to trace the source of mon­ey and where it’s flow­ing,” Rosen­berg said Tues­day, but added, “the detrac­tor from that would be anonymi­ty-enhanc­ing technologies.”

Last month, the US Trea­sury added cryp­to mix­ing ser­vice Tor­na­do Cash and 45 relat­ed Ethereum address­es to its blocked list. That meant indi­vid­u­als in the US are pro­hib­it­ed from deal­ing with them.

How­ev­er, the move has drawn crit­i­cism from sev­er­al cryp­to com­men­ta­tors, with some say­ing it’s a bad idea for author­i­ties to inter­vene and try to crim­i­nal­ize a smart con­tract, harm­ing law-abid­ing US cit­i­zens seek­ing to pro­tect their pri­va­cy in the process.

The Sen­ate committee’s meet­ing was con­vened to dis­cuss “Tight­en­ing the Screws on Rus­sia” as a result of aggres­sion in Ukraine and the agency’s next steps in enforc­ing eco­nom­ic sanctions. 

The Trea­sury has already iden­ti­fied Russ­ian enti­ties that have been attempt­ing to cir­cum­vent sanc­tions using cryp­to. Ear­li­er this month, it des­ig­nat­ed 22 peo­ple and two enti­ties for abet­ting Russia’s fur­ther inva­sion of Ukraine.

In April, the Office of For­eign Assets Con­trol des­ig­nate a vir­tu­al cur­ren­cy min­ing com­pa­ny for the first time, along with com­mer­cial bank Tran­skap­i­tal­bank and a 40-mem­ber net­work led by oli­garch Kon­stan­tin Malofeyev.

Chainal­y­sis found in July that about 10% of all funds sent from illic­it address­es were received by mix­ers in 2022.


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  • Shali­ni Nagarajan

    Block­works

    Reporter

    Shali­ni is a cryp­to reporter from Ban­ga­lore, India who cov­ers devel­op­ments in the mar­ket, reg­u­la­tion, mar­ket struc­ture, and advice from insti­tu­tion­al experts. Pri­or to Block­works, she worked as a mar­kets reporter at Insid­er and a cor­re­spon­dent at Reuters News. She holds some bit­coin and ether. Reach her at [email pro­tect­ed]

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