With New Russian Sanctions, We Need Legislative Framework To Stop Illicit Use Of Crypto

This is the perfect time to create legislation to curb illicit use of crypto products, according to Federal Chairman Jerome Powell. Russia’s invasion of Ukraine has emphasized a need for cryptocurrency regulation to prevent sanctioned individuals from using cryptocurrency to skirt sanctions, Powell told the House Financial Services Committee on March 2, CoinDesk reported

Rep. Juan Vargas (D-CA) questioned Powell about concerns of cryptocurrencies being used to evade sanctions.

Powell replied that the Ukraine-Russia conflict underscores the need for Congressional action on digital finance including cryptocurrencies.

“Ultimately, what’s needed is a framework, in particular, ways to prevent these unbacked cryptocurrencies from serving as a vehicle for terrorist finance and general criminal behavior — tax avoidance and the like,” Powell said. “That’s what I would say, but I don’t really know the extent to which it’s happening, but you read about it in the paper.”

Powell added, “We have this burgeoning industry which has many parts to it, and there isn’t in place the kind of regulatory framework that needs to be there.”

Powell testified on monetary policy, and he spoke of a shift in priorities given Russia’s invasion of Ukraine and the subsequent surge in financial sanctions against Russia. 

The West and its allies, including Japan and South Korea, have cut off Russia’s access to the global financial system, causing the value of the ruble and Russian stocks to plummet in the past 10 days. Some observers say crypto can be used to circumvent the sanctions, giving Russians access to funds via cryptocurrency, The Block Crypto reported.

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This possibility has triggered calls for crypto sanctions. Bitcoin and other altcoins are decentralized, borderless and without a central authority to block transactions. Ukraine has called for all the world’s top crypto exchanges to ban Russian users, a request that has been rejected by many of the major exchanges.

Some experts say sanctions against crypto won’t be necessary, however.

“The size and scale of crypto markets — and their state of liquidity — is not sufficient enough to offset what happens from banking disruptions and other disruptions from sanctions,” said Yaya Fanusie, a fellow at the Center for a New American Security who assesses national security and money laundering risks related to digital assets.

“It’s akin to, if someone were to block your paycheck for a month and then you had to rely on your piggy bank to make up for it,” Fanusie added.

Software engineer Mike Caldwell holds a 25 Bitcoin token at his shop in Sandy, Utah, April 3, 2013. (AP Photo/Rick Bowmer, File)

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