May 02, 2024

At Hearing, Warren Calls for Applying Strong Anti-Money Laundering Protections to Cryptocurrency to Shut Down Financing for U.S. Adversaries and Terrorist Groups

“Anything Congress does to legitimize and grow the crypto market must have strong protections so we do not increase money-making opportunities for Iran and other adversaries.” 

Video of Exchange (YouTube)

Washington, D.C. – At a hearing of the U.S. Senate Armed Services Committee Senator Elizabeth Warren highlighted the national security threat posed by not properly regulating cryptocurrencies, including the inadvertent funding of rogue nations. 

Senator Warren highlighted that without proper anti-money laundering regulations, bad actors are using crypto to evade U.S. sanctions, and that those actors are making hundreds of millions of dollars annually by acting as middlemen in the growing crypto ecosystem.

Senator Warren questioned Avril D. Haines, Director of National Intelligence about Iran’s ability to avoid sanctions using crypto and about how crypto makes American adversaries stronger. Director Haines confirmed that Iran is using crypto to move millions of dollars around and also explained that over 50% of North Korean foreign currency revenues now come from crypto. 

Senator Warren questioned Lieutenant General Jeffrey Kruse of the U.S. Air Force about the importance of cutting off crypto as a revenue source for foreign adversaries. Lieutenant General Kruse answered that Iran having crypto as an additional revenue source gives them more discretionary spending power. 

Senator Warren called for applying strong anti-money laundering protections to cryptocurrency to ensure the United States cuts off money-making opportunities for Iran and other adversaries. 

Transcript: Hearing To Receive Testimony on Worldwide Threats 
Senate Armed Service Committee
May 2, 2024

Senator Elizabeth Warren: Director Haines, when you testified before the committee last year, we talked about how crypto is being used to help finance major threats against national security like North Korea's nuclear weapons program, Iran’s ability to evade sanctions, and ransomware attacks on American hospitals. It seems the problem is getting worse. 

According to the Wall Street Journal last month, “crypto has become indispensable to Vladimir Putin's war machine, allowing Russia to get around sanctions and to throw billions of dollars into its war against Ukraine. 

According to the Treasury Department, Hamas's terrorist attacks against Israel in October were financed in part with crypto and their current financing depends on crypto. 

According to the block chain analytics firm Elliptic, Iran is deep into crypto. Let's focus on how Iran is using crypto. 

Director Haines, reports from our intelligence and national security agencies say that Iran uses crypto to evade U.S. sanctions. For example, in four years, Binance, just one of many crypto exchanges, processed $8 billion in transactions for Iran. Can you explain what threat that poses for our national security? 

Honorable Avril D. Haines, Director of National Intelligence: There is no question that cryptocurrency is a significant issue for our national security. We talked about DPRK last time and we continue to produce statistics that indicate it is now over 50% of their foreign currency revenues are coming through crypto and there is significant exploitation of this as a way to get around sanctions to ultimately engage in illegal transactions, to support a system and certainly the ransomware attacks and other things like that have demonstrated. 

With respect to Iran, we see this. There is no question that Iran permits the use of cryptocurrencies and smart contracts to pay for imported goods because it lacks access to the U.S. Dollar, and that’s a consequence of the sanctions regimes that are in place. What is also true though – and just to frame it doesn’t mean that this isn’t a problem – its use is relatively limited as compared to other transaction pieces, so it has not been as much of a major factor in our judgment as it might otherwise seem. 

So in other words, we’ve got – in early August 2022 the country made its first official cryptocurrency payment for imports worth $10 million out of a total of $102 billion for imports, so it is a similar challenge in the context of Russia as well, where we see them using cryptocurrency and it is almost certainly going to expand in different ways but there are structural limitations on their capacity – 

Senator Warren: So, let's into that. Let’s look at the structural limitations here. I think what you're telling me is that Iran is definitely using crypto to move money around. 

Director Haines: Yes. 

Senator Warren: And to do that to evade sanctions and fund Hamas. Your assessment is consistent with the assessment of the Treasury Department on this, but that is not all Iran is doing with crypto. Iran is also making money by processing crypto transactions for other people. As you know, crypto relies on middlemen – in the crypto world, they’re called miners or validators – and they process or verify transactions. 

The Iranian government officially entered the crypto industry in 2019 because it could make money doing it, so if I sent $1000 in Bitcoin to you, Lieutenant General Kruse, we might be sitting here in Washington when we engage in this transaction, but Iran may be the one processing the transaction for us and pocketing the transaction fee that I pay. 

Neither of us would ever even know that we were enriching Iran through this transaction. According to one estimate in 2021, Iran processed as much as 7% of the world’s Bitcoin transactions – enough to earn them about $1 billion. So, the bigger the crypto market gets, the more opportunities Iran has to profit by processing other people's crypto transactions. Let me ask you, how important is it that we cut off this revenue source for Iran? 

Lieutenant General Jeffrey Kruse, USAF, Director of Defense Intelligence Agency: What I would say is this is not dissimilar to the previous conversation about the source of revenue – whatever Iran’s source of revenue – crypto or other transactions – oil sales – and how Iran uses it, so it does come the more finances they have a available to them – this or other sources – it certainly allows Iran to make decisions on how it’s going to spend that. 

Senator Warren: We have tools to cut off countries like Iran from banking transactions, but those were not designed for cryptocurrencies, so crypto money keeps flowing and that is why I am concerned about any effort to regularize stablecoins without giving regulators the full set of tools they need to crack down on terrorist financing. Anything Congress does to legitimize and grow the crypto market must have strong protections so we do not increase money-making opportunities for Iran and other adversaries. Thank you, Mr. Chairman.