U.S. Treasury Deputy Secretary Adewale O. Adeyemo has urged Congress to take action to provide the government with “necessary tools” to combat illicit finance tied to cryptocurrencies.
Adeyemo said that terrorist groups have been trying to take advantage of cryptocurrencies over the past few years, according to his written testimony for the Senate Banking, Housing and Urban Affairs Committee Hearing scheduled for Tuesday.
“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,” he noted.
Adeyemo continued that one of the agency’s bottlenecks lies in the fact that bad actors are “increasingly finding ways to hide their identities and move resources using virtual currency.”
With existing approaches to combating terrorist financing through the traditional financial system, the agency has effectively made it harder for terrorist groups to move money. However, “the more effective our targeting has been, the more reason there is for these terrorist groups to look into virtual assets,” Adeyemo said.
He added that Russia is also increasingly turning to alternative payment mechanisms, including stablecoins, to “try to circumvent our sanctions and continue to finance its war machine.”
In December, a group of bipartisan U.S. senators introduced a bill that would broaden the Treasury’s sanctions powers to cover more terrorist groups including Hamas, and give them more resources to address crypto.
Proposals include three reforms
Adeyemo noted that the Treasury sent proposals to the Committee in November in the hope of strengthening the government’s counter-terrorist financing authorities.
He explained in the testimony that the proposals generally covered three reforms — the introduction of a secondary sanctions tool, modernizing and closing gaps in existing authorities, and addressing jurisdictional risk from offshore crypto platforms.
Currently, the Treasury has the power to prohibit U.S. correspondent accounts and transaction processing for foreign financial institutions with suspicious activities. “But, unlike banks, foreign cryptocurrency exchanges and some money services businesses do not have or depend on correspondent accounts for all of their transactions,” Adeyemo said, adding that a new secondary sanctions tool would help the Treasury to evolve its targeting capabilities.
“While we continue to assess that terrorists prefer to use traditional financial products and services, we fear that without Congressional action to provide us with the necessary tools, the use of virtual assets by these actors will only grow,” he continued.
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