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The U.S. Treasury Department warned that cryptocurrencies could undermine the effectiveness of U.S. sanctions. The focus on digital currencies coincides with an administration-wide effort to determine how to regulate the nascent technology without stifling innovation.
Cryptocurrencies Could Undermine U.S. Sanctions: Treasury
According to the latest report by the U.S. Treasury Department, digital currencies pose a threat to America’s sanctions program.
“Technological innovations such as digital currencies, alternative payment platforms and new ways of hiding cross-border transactions all potentially reduce the efficacy of American sanctions. These technologies offer malign actors opportunities to hold and transfer funds outside the traditional dollar-based financial system,” the report said.
“These technologies offer malign actors opportunities to hold and transfer funds outside the traditional dollar-based financial system,” and “could be used by adversaries to build new financial and payments systems intended to diminish the dollar’s global role.”
While the seven-page report offered little detail on how the Treasury plans to adapt to the new innovation in cryptocurrencies and blockchain technology, the recommendations include investing in the new technology and hiring staff with expertise in digital assets.
In fact, a senior Treasury official said that one of the ways to prevent the evasion of sanctions was greater coordination with other countries to make it difficult for cryptocurrencies to be converted into fiat currencies.
Evading U.S. Sanctions through Newer Ways
At the time, the United States has over 9,000 sanctions in places such as North Korea, Iran, and Venezuela for facilitating terrorism, violating human rights, or other illicit behavior.
The U.S. dollar’s role as the world’s reserve currency means that the United States can cut off countries from the global financial system at its discretion. This has led to finding new ways to evade America’s sanctions, including the use of digital currencies that have no linkage to the traditional banking system.
According to the law firm Gibson, Dunn & Crutcher, the use of sanctions surged to record levels which averaged more than 1,000 new designations per year during Trump’s administration. The current Biden administration is set to impose 900 sanctions, which would tie for the third-highest total on record.