Crypto experts say no evidence of major Russia sanctions dodging

NEW YORK (BLOOMBERG) - Crypto does not appear to be a successful tool for avoiding the sanctions that the United States and its European allies have levied against Russian organisations and individuals, including President Vladimir Putin, following the country's invasion of Ukraine, a panel of cryptocurrency experts told lawmakers.

"We have not seen evidence of Russia or Putin systematically using cryptocurrencies to evade sanctions," Mr Jonathan Levin, co-founder of Chainalysis, a blockchain-analytics firm that sells anti-money laundering services to the government, told the US Senate Banking Committee on Thursday (March 17).

US lawmakers, including Massachusetts Senator Elizabeth Warren, have raised concerns that Bitcoin, which can be traded without intermediaries, could make it harder for the authorities to spot sanctions violators.

However, the cryptocurrency market is too small to facilitate wide-scale sanctions evasion by Russians, the experts said during the hearing on the role of digital assets in illicit finance.

"You can't flip a switch overnight and run a G-20 (Group of 20) economy on cryptocurrency - there just isn't the liquidity," said Mr Michael Mosier, former acting director of the US Treasury's Financial Crimes Enforcement Network.

Russia has become the most sanctioned country in the world following its invasion of Ukraine on Feb 24. Since then, the Russian rouble has plunged, the nation's stock market remains closed and several Russian banks have been cut off from the Swift financial messaging system.

Regulatory oversight has jumped since. The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) have largely taken a back seat to other financial regulators when it comes to crypto.

But a March 9 executive order by US President Joe Biden directed the CFPB and FTC to study how they can police crypto transactions for fraud and abuse, a mission both agencies are equipped to do.

"They've taken the position that crypto is not a consumer product, but as of (March 9) that position is done," said Ms Laurel Loomis Rimon, a partner with Paul Hastings LLP and a former CFPB attorney.

The FTC and CFPB have unique powers to protect consumers against "unfair" and "deceptive" acts and practices-with the CFPB also having additional powers to go after "abusive" acts and practices. Those broad enforcement authorities could play a major role in overseeing digital money and crypto exchanges, in key areas like fraud protection and consumer privacy.

Crypto has been treated almost solely as securities and commodities, leaving room for frauds that are not covered by regulators. But cryptocurrencies have steadily been gaining acceptance among consumers, with some studies finding that as much as a quarter of the US population having exposure to them.

Putting a consumer protection lens on cryptocurrency regulation will likely help stabilize the market by providing a bigger oversight umbrella, said Professor Hilary Allen, from the American University Washington College of Law.

The FTC reported a tenfold increase in crypto scams from 2020 to last year, including a number of get-rich quick schemes and fake celebrity endorsements involving lesser-known currencies.

"If you're tamping down on the worst excesses of how consumers and investors are being treated, that makes it less likely that you're going to have bubbles that cause a financial crisis," she said.