- The US Treasury is asking US lawmakers to expand their authority to sanction foreign digital asset service providers that may harm US national security.
- The Treasury also demands a secondary sanctions tool to crack down on foreign digital asset service providers engaged in illicit finance.
The United States Treasury Department has asked the government to introduce a secondary sanctions tool that will enable them to effectively track and root out cryptocurrency exchanges that take part in illicit financial practices. Adewale Adeyemo, Deputy Secretary to the Treasury in his testimony at yesterday’s Senate Banking, Housing & Urban Affairs Committee Hearing, reiterated the Treasury’s commitment to national security and highlighted some necessary reforms in the crackdown against illicit financing in the crypto space.
Treasury Aims for Enhanced Illicit Finance Targeting Via Secondary Sanctions Tools
In his testimony before the Senate, Treasury’s Adeyemo pointed out that the rapid departure from the traditional financial system and terrorists’ taking “advantage of innovations in cryptocurrencies” has left a gap in enforcement against illicit financing which must be closed to preserve national security.
“For example, five years ago, al-Qaeda and affiliated terrorist groups, largely based out of Syria, operated a bitcoin money laundering network using social media platforms to solicit cryptocurrency donations,” said Adeyemo.
One of the major concerns has also been the security of one of the United States’ greatest Middle Eastern allies, Israel, which has never enjoyed a break from Islamic terrorist attacks. Israel’s archenemy Hamas has resorted to getting financial support from its sponsors via cryptocurrency transfers – a development confirmed by Israel’s seizure of complicit crypto accounts.
Besides terrorist organizations like Hamas, the Palestinian Islamic Jihad, ISIS, the Revolutionary Guard Corps-Qods Force (IRGC-QF), and al-Qaeda who use cryptocurrency to finance their terror acts, there are also several “state actors” like Russia and DPRK (North Korea) – who leverage cryptocurrency to sponsor war machinery and launder cybercrime proceeds respectively – thereby necessitating an enforcement regime and new targeting tools that can check their actions and root them out.
As part of the three reforms to facilitate the assault against the bad actors in the crypto sphere, the Treasury asks for “a new secondary sanctions tool” that “would help Treasury to evolve its targeting capabilities.” A secondary sanctions tool will also compensate for the inability of targeting tools previously used by the Treasury in “traditional payment contexts” to work as effectively with virtual assets.
The Treasury’s authorities with which they can “prohibit U.S. correspondent accounts and transaction processing for foreign financial institutions that have operated with a designated person” have been employed to clamp down on illicit finance networks in Russia, Iran, and North Korea. However, foreign crypto exchanges don’t use correspondent accounts for all their transactions – which, according to the Treasury, calls for a secondary sanctions tool.
A secondary sanctions tool for cryptocurrency exchanges will enable the US to sanction exchanges that allow illicit transactions on their platforms – or enable financial transactions from individuals, organizations, or nations whose activities threaten the security, foreign policy, and economy of the United States.