US Senator Warren is drafting a bill to track transactions in private crypto wallets

U.S. Senator Elizabeth Warren said she is drafting a "new bill to ensure that Putin and his cronies cannot use cryptocurrency to undermine our economic sanctions."

The United States and its allies have cut off hundreds of billions of dollars in foreign exchange reserves from the Russian central bank, and they have removed Russian banks from the SWIFT communications network. Financial transactions between Western and Russian countries are banned. But some U.S. lawmakers remain concerned that Bitcoin and other cryptocurrencies could be used to circumvent sanctions.

Warren was one of four Democratic senators who last week pressured current Treasury Secretary Janet Yellen to ensure that cryptocurrency exchanges and other service providers do not provide a means for Russia to circumvent sanctions. In a letter to the Treasury secretary, Warren, Mark Warner, Jack Reed and Sherrod Brown noted that digital assets “allow entities to bypass the traditional financial system.”

However, crypto services and exchanges provide an on-ramp and off-ramp for crypto by connecting it to the traditional financial system. Major exchanges such as Coinbase and Binance claim that they are actively monitoring and complying with all applicable sanctions, thus closing off a major onramp to the Russian government.

Senator Warren said on Tuesday that regarding know-your-customer (KYC) regulations, “We have a lot of evidence that not all crypto platforms are actually complying with them, collecting information and then reporting it and shutting down services in places where we sanction them.”

However, there has been no convincing public evidence so far that cryptocurrency players are actually undermining sanctions. Yellen said last week that the Treasury Department would monitor the effectiveness of sanctions, but noted in her response to senators about cryptocurrencies: “It’s not that the industry is completely circumventable.”

As previously reported by BitPush, the U.S. Financial Crimes Enforcement Network (FinCEN) under the U.S. Treasury Department has warned financial institutions to consider cryptocurrencies as a possible means that Russia may try to use to evade sanctions related to the country’s military operations in Ukraine.

U.S. President Joe Biden will sign an executive order this week that will outline the U.S. government's cryptocurrency strategy, according to several people familiar with the government's plans. The order will direct federal agencies to review potential regulatory changes and the impact of digital assets on national security and the economy, the people said. The White House's approach to cryptocurrencies has attracted new attention in recent weeks as the United States and its allies have imposed sanctions on Russia.

“In the face of growing economic pressure from Russia, U.S. financial institutions must be vigilant to potential Russian sanctions evasion efforts,” said Him Das, Acting Director of FinCEN. “While we have not seen widespread use of methods such as cryptocurrency to evade sanctions, timely reporting of suspicious activity contributes to our national security and our efforts to support Ukraine and its people.”

The head of the US intelligence community said that it would be a challenge for Russia to use cryptocurrency to completely undermine Western sanctions. In addition, the US Deputy Secretary of State said that the US side is studying loopholes in cryptocurrency sanctions against Russia.