A series of recent statements by key financial regulators and US senators once again bring cryptocurrency regulation into the spotlight. In this post, we summarize several recent developments.
On March 2, 2022, several members of the Senate Banking Committee sent a letter to the US Treasury Department. The letter expresses concern that “criminals rogue states, and other actors may use digital asset and alternative payment platforms as a new means to hide cross-border transactions for nefarious purposes.” Citing the Russian invasion of Ukraine and recent economic sanctions imposed on Russia, the letter seeks “information on the steps Treasury is taking to enforce sanctions compliance by the cryptocurrency industry.” In particular, the letter speculates that “Russia may use cryptocurrencies to circumvent the broad new sanctions it faces from the Biden administration and foreign governments in response to its invasion of Ukraine.” The letter also cites innovation in the DeFi space that could also be used to evade recent sanctions. The senators’ letter concludes with a series of questions around actions the Treasury is taking to enforce sanctions compliance for the cryptocurrency industry and inhibit the use of cryptocurrency for sanctions evasion.
The next day, in a March 3 hearing on monetary policy before the Senate Banking Committee, Federal Reserve Chair Pro Tempore Jerome Powell faced questions on a number of topics, including cryptocurrency and sanctions compliance. In responding to senators’ questions, Chair Powell conceded that there are concerns that cryptocurrency could be used for sanctions evasion, though he had no particular knowledge of any such evasion having taken place. He also called on lawmakers to adopt a “legal framework that would really take away as much as possible . . . the possibility that people could use unbacked cryptocurrencies as a way to evade the law, or to finance terrorism and hide their ill-gotten gains.”
Finally, in an op-ed published in the Washington Post on March 6, the Undersecretary for Domestic Finance at the Treasury Department, Nellie Liang, called for comprehensive federal regulation of stablecoins. She catalogued a series of perceived risks to consumers and the financial system as a whole associated with the proliferation of stablecoins, and cited to the recent President’s Working Group report on this asset class. Undersecretary Liang conceded that stablecoins “that are well-designed and appropriately regulated could deliver important benefits for our payments system.” But likening stablecoins to other financial products associated with the 2007 financial crisis, Undersecretary Liang also called on Congress to “act quickly to help ensure that these risks do not harm consumers and the broader economy.”