Newsletter

March 18, 2022

Senator Elizabeth Warren (D-MA), Senate Armed Services Committee Chairman Jack Reed (D-RI), Senate Intelligence Committee Chairman Mark Warner (D-VA), Senate Foreign Relations Committee Chairman Robert Menendez (D-NJ),  Senate Defense Appropriations Subcommittee Chair Jon Tester (D-MT) and others introduced the Digital Asset Sanctions Compliance Enhancement Act to “ensure that Vladimir Putin and Russian elites don’t use digital assets to undermine the international community’s economic sanctions against Russia following its invasion of Ukraine.”

The bill comes amid concerns from some Senators  that Russian actors may try to evade economic sanctions by using digital currencies. Countries hit hard by sanctions, including North Korea and Iran, have been previously found to use cryptocurrency to curb the effects of economic sanctions. 

This legislation is cosponsored by Senators Tammy Duckworth (D-IL), Debbie Stabenow (D-MI), Raphael Warnock (D-GA), Chris Van Hollen (D-MD), Tina Smith (D-MN), and Catherine Cortez Masto (D-NV).

“Putin and his cronies can move, store, and hide their wealth using cryptocurrencies, potentially allowing them to evade the historic economic sanctions the U.S. and its partners across the world have levied in response to Russia’s war against Ukraine. I’m glad to introduce the Digital Asset Sanctions Compliance Enhancement Act with my colleagues to strengthen our sanctions program and close off any avenues for Russian evasion,” said Senator Warren. 

“The U.S. and its allies have imposed some of the strongest sanctions in history to try to stop Putin and his cronies from waging war on Ukraine.  A sanctions system without strong authorities to limit evasion using digital assets is like having a security system but leaving the front door open.  This bill would clarify Treasury’s authorities and strengthen our sanctions on Putin and his enablers,” said Senator Reed. 

Importantly, Administration officials including the Director of the FBI and staff at FinCen have expressed doubt that sanctioned entities – either entities or oligarchs – can use digital assets (and distributed ledger technology) to avoid sanctions at scale. Equally notable, no Republicans are currently cosponsors of the legislation.

Representative Brad Sherman (D-CA-30) will be introducing a companion bill in the House. 

“I look forward to joining with my colleagues to make sure that one of the tools available to the administration is the ability to tell crypto exchanges if they’re doing business in the United States, they can’t do business with Russia-based crypto wallets until this crisis is over,” said Sherman. 

The Senate Banking Committee held a hybrid hearing discussing the potential role of digital assets in illicit activity, specifically sanction evasion. Read our full summary of the hearing here

The U.S. continues to take significant measures in response to Russia’s invasion of Ukraine.  This week, the House Financial Services Committee, led by Chairwoman Maxine Waters (D-CA), passed five bills to suspend Ukraine’s crippling debt obligations, crack down on Russian oligarchs for evading existing sanctions, deny Putin economic resources and access to financial markets, and isolate Russia from major financial and intergovernmental forums. Four of the bills passed on a bipartisan basis. Read our summary of the committee markup here.

We have developed a listserv to provide updates on these sanctions and related matters. To be included in the email distribution list, please email us at publicpolicyteam@fsvector.com.

Bipartisan members of the House Blockchain Caucus are demanding the SEC provide information about how it’s using the enforcement and examination divisions to gather information about blockchain and cryptocurrency businesses. “Those authorities are better suited to the SEC’s divisions charged with seeking public commentary as part of the rulemaking process,” a group of eight lawmakers led by Rep. Tom Emmer (R-Minn.) wrote in a letter to SEC Chair Gary Gensler.

The SEC is proposing to amend Rule 3b-16 under Securities Exchange Act of 1934 (“Exchange Act”), which defines certain terms used in the statutory definition of “exchange” under Section 3(a)(1) of the Exchange Act to include systems that offer the use of non-firm trading interest and communication protocols to bring together buyers and sellers of securities. A short summary that we drafted a few weeks ago when the SEC published the initial request for comment can be found here. Comments are due by April 18. 

The Justice Department announced the appointment of Associate Deputy Attorney General Kevin Chambers as Director for COVID-19 Fraud Enforcement to lead the department’s criminal and civil enforcement efforts to combat COVID-19 related fraud.

Michele Korver is leaving her job as the Financial Crimes Enforcement Network’s top crypto expert to head up regulatory affairs for Andreessen Horowitz, a venture capital firm that has raised billions to invest in digital assets and Web3 startups.

The Financial Crimes Enforcement Network (FinCEN) announced that it has assessed a $140 million civil money penalty against USAA Federal Savings Bank for willful violations of the Bank Secrecy Act and its implementing regulations.

The IMF’s executive board has suspended the ceremonial role of ‘dean,’ which was held by Russia’s representative Aleksei Mozhin, following pressure from top shareholders at the multilateral lender including the US, UK and Canada.

​​Ukrainian President Volodymyr Zelenskyy legalized crypto in the country, signing into law a bill on virtual assets, amid an increase in digital asset donations to support the country’s defense against the Russian invasion.

Sarah Bloom Raskin informed the White House that she was bowing out as President Joe Biden’s pick to be the next Fed vice chair for supervision.

On March 15, consumer advocacy organization U.S. PIRG released a comprehensive Buy Now, Pay Later (BNPL) industry report. A co-author of the report suggests some regulatory guidance for the BNPL industry could come short after the March 25 consumer comment deadline.

On Wednesday, March 9, the Biden Administration released its much anticipated Executive Order (EO) on Ensuring Responsible Development of Digital Assets

The EO sets out a national strategy to promote digital asset innovation while protecting against the risks associated with digital assets. The strategy focuses on 6 issue areas:

  • consumer and investor protection; 

  • financial stability; 

  • illicit finance; 

  • U.S. leadership in the global financial system and economic competitiveness; 

  • financial inclusion; and 

  • responsible innovation.

The EO tasks two senior White House officials – Jake Sullivan, United States National Security Advisor, and Brian Deese, Director of the National Economic Council of the United States – with interagency coordination with respect to the above topics.

The EO also highlights the importance of a potential US CBDC and calls for additional research and reports to determine whether the United States should issue one. It also calls for an increased focus on the climate impacts of proof-of-work consensus, among others. 

With respect to U.S. leadership in the global financial system, the EO promotes the United States’ role in pushing for higher standards internationally to guard against illicit financing and calls for the U.S. to take an active role in global interagency coordination. 

The EO tasks various agencies, including the Treasury Department, the prudential banking regulators (FRB, OCC, and FDIC), the financial market regulators (SEC and CFTC), and the consumer protection regulators (CFPB and FTC), among others, to study aspects of the digital asset industry and report on their findings. 

Read our full overview of the order here and our presentation here