March 17, 2022

At Hearing, Warren Warns Putin and Russian Elites Could Use Crypto to Hide Their Wealth and Evade Economic Sanctions

Today, Senators Warren, Reed, Warner, and Tester introduced the Digital Asset Sanctions Compliance Enhancement Act of 2022 to ensure that Vladimir Putin and Russian elites don't use cryptocurrencies and other digital assets to undermine the international community's economic sanctions against Russia. 

Video of Hearing Exchange (Youtube)

Washington, D.C. — During a U.S. Senate Committee on Banking, Housing, and Urban Affairs, United States Senator Elizabeth Warren (D-Mass.) expressed concern that cryptocurrency could be used by Russian President Vladimir Putin and his cronies to undermine the international community's economic sanctions against Russia following its invasion of Ukraine. Senator Warren highlighted the various cryptocurrency tools that could make it easier for sanctioned individuals to hide their wealth and lessen the impact of Russian sanctions, following the practice of North Korea, Iran, and Venezuela, countries that have already been found to have used crypto to evade sanctions.

Earlier today, Senator Warren, Senate Armed Services Committee Chairman Jack Reed, Senate Intelligence Committee Chairman Mark Warner, Senate Defense Appropriations Subcommittee Chair Jon Tester, and colleagues introduced the Digital Asset Sanctions Compliance Enhancement Act of 2022, which would authorize the President to sanction foreign crypto firms that are doing business with sanctioned Russian entities, authorize the Treasury Secretary to prohibit U.S.-based digital asset actors from transacting with Russia-linked crypto addresses; and increase transparency around crypto transactions.

Transcript: Understanding the Role of Digital Assets in Illicit Finance
U.S. Senate Committee on Banking, Housing, and Urban Affairs 
Thursday, March 17, 2022

Senator Warren: The cryptocurrency market has exploded over the last few years, with the volume of crypto transactions reaching nearly $16 trillion last year – that’s up about 600% just from 2020. Now, most of that growth has been driven by speculation and gambling. But we also know crypto provides a new payment option for criminals and cheats. And it’s how those who attack our systems with ransomware collect their money with the least risk they will be caught. In fact, according to one of our witnesses here today, about three-quarters of the money collected in ransomware attacks last year went to Russia-linked actors. So Russians certainly know how to run illegal scams through crypto.

And we know that other countries have used crypto to evade sanctions. 

Mr. Levin, your company tracks illicit finance in crypto. Do you know which countries have already used crypto to evade sanctions?

Mr. Jonathan Levin: Thank you Senator for the question. It's an incredibly important issue and something we spend a lot of time researching and detecting actually. So when it comes to sanctions evasion, the transparency of the blockchain actually -

Senator Warren: Excuse me, my question was do you know the three countries that have already used crypto in order to evade financial sanctions?

Mr. Jonathan Levin: We have detected the use of cryptocurrency in Venezuela, Iran, and North Korea.

Senator Warren: Okay, and just last week, FinCEN, the federal agency responsible for identifying financial crimes, issued a warning that in light of the sanctions against Russia, quote “sanctioned persons, illicit actors, and their related networks or facilitators may attempt to use (crypto) and anonymizing tools to evade U.S. sanctions and protect their assets around the globe,” end quote.

Even so, the crypto industry claims that Russians cannot use crypto to hide their wealth because the $3 trillion crypto market is too small and too transparent for that to work. So let’s test that out just a little bit. 

Mr. Levin, let’s consider one of Putin’s cronies who already has a billion or so in crypto that he wants to hide from governments that are enforcing sanctions on oligarchs. Now, can this oligarch make it harder to trace his money if he hops from one blockchain to another, if he deposits those tokens into a couple of wallets that don’t require him to provide identifying information, and if he uses a mixing service that launders his money with other people’s money?

Mr. Jonathan Levin: Thank you, Senator. So the scenario that you described where an oligarch has a billion dollars to be able to launder requires significant amounts of liquidity to be able to obfuscate that amount of money through the use of cryptocurrency. In fact, there are many times we’ve been able to identify,

Senator Warren: I’m sorry, let me just remind you what my question was again. What I’m asking is about the tools that are available, now he may have to break it up into multiple pieces of who knows, a hundred million dollars at a crack, but the question I’m asking is does hopping from one blockchain to another, does depositing token in a couple of wallets that don’t require him to provide identifiable information, and does using a mixing service all make it easier for him to hide his money?

Mr. Jonathan Levin: So Senator, the answer to that question is no because the chain hopping that occurs, you need to actually provide the tokens which in a transparent way that allows you to move across blockchains. We’ve actually got software that, 

Senator Warren: So you don’t think chain hopping makes it any easier to hide your money? How about depositing tokens in wallets that don’t require identifying information? 

Mr. Jonathan Levin: You can always split the money up into wallets that don’t require, 

Senator Warren: And that would help hide the money, and about how about using a mixing service? 

Mr. Jonathan Levin: that doesn’t remove the record of where the money actually sits so that hasn’t, 

Senator Warren: But the question I’m asking is does it make it harder to track the money?

Mr. Jonathan Levin: No, so it doesn’t make it harder to track the money, 

Senator Warren: And using a mixing service you’re telling me doesn’t make it harder to launder money? 

Mr. Jonathan Levin: The daily liquidity value of mixing services globally is about $30 million dollars, 

Senator Warren: So you might have to do this day by day?

Mr. Jonathan Levin: And we have done extensive work in tracking large sums of money through mixes that have led to the arrests of people and the disruption of their activity.

Senator Warren: You know, I’m actually a little surprised by your answers since you charge a lot of money to untangle and track assets through the system and the system keeps developing more ways to obscure that money, and it's part of what you advertise. 

But I want to get on to a question with Mr. Stansbury. You are a former assistant U.S. Attorney who has led major cybercrime and money laundering investigations, so let me ask you: Is it possible that the oligarch, my hypothetical oligarch, could now buy and sell some of the things that he wants—diamonds, art, maybe even real estate—without ever needing to put his money into the formal banking system, which also would make it harder for law enforcement to catch him?

Mr. Shane Stansbury: Thank you, Senator. Yes, it’s theoretically possible in today’s market. Obviously, it’s hard but at least if he’s able to go to a friendly jurisdiction and use cryptocurrency exchanges or some other platform that’s not in compliance with internationally recognized anti-money laundering standards as you’ve suggested that is possible. There’s also some reporting recently of jurisdictions being friendly for some purchases of real estate and other items through cryptocurrency. 

Senator Warren: So no one can argue that Russia can evade ALL sanctions by moving ALL its assets into crypto. But for Putin’s oligarchs who are trying to hide you know a billion or two of their wealth, crypto looks like a pretty good option.

And that’s why I’m introducing today my Digital Asset Sanctions Compliance Enhancement Act, along with nine members of the Banking Committee – including the Chairman of the Senate Armed Services Committee, the Chairman of the Senate Intelligence Committee, and the Chairman of the Defense Appropriations Subcommittee – and several other senators.

This is a bill that would authorize the President to sanction foreign crypto firms that are doing business with sanctioned Russian entities and authorize the Treasury Secretary to act. 

Thank you for being indulgent, for letting me run over on time, I appreciate it.