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Anti-Crypto Legislators Gin Up Latter-Day ‘Red Scare’ to Attack Economic Privacy
We missed this from the Senate Banking Committee a couple of weeks ago but it’s important we call out every instance where ideologues push the “if you’re not doing anything wrong, why do need privacy?” line of attack. It’s no secret that when politicians have no other leverage, they cite national security fears. To paraphrase Samuel Johnson, national security is the last refuge of a scoundrel.
Enter the scoundrel here in the form of Sen. Elizabeth Warren, D-MA.
During Tuesday’s Senate hearing on Russian sanctions, Warren denounced the crypto industry, pointing to Tornado Cash, a prominent mixing service, which was recently sanctioned by the Treasury Department for laundering over $7 billion in virtual currency.
“I’ve had serious concerns about Russian elites potentially using cryptocurrency to evade sanctions,” Warren said at the hearing. “We already knew that countries like North Korea had used crypto to skirt sanctions and launder at least hundreds of millions of dollars, and Russia could easily be part of that.”
Warren also criticized Coinbase, the largest U.S.-operated cryptocurrency, which has backed a lawsuit by users of Tornado Cash against the Treasury Department, alleging that the department went beyond its authority in issuing such sanctions.
Elizabeth Rosenberg, an assistant secretary for terrorist financing and financial crimes at the Treasury Department told Warren that it is possible Russian oligarchs could use these currencies to evade sanctions.
But Rosenberg added that sanctions such as those imposed on Tornado Cash could serve as a deterrent for future money launderers.
“That’s an effective avenue we can use in order to signal that we cannot tolerate money laundering, so whether that’s for a Russian criminal actor, Iranian, North Korean, or wherever they may come from,” she said.
In March, Warren introduced the Digital Asset Sanctions Compliance Enhancement Act, aimed at providing additional sanctions towards Russia, as well as more transparency when it comes to digital assets.
“One thing I’ve learned over the past couple of years is when the crypto boosters cry the loudest, you’re probably on to something,” Warren said. “If crypto has nothing to hide on money laundering or oligarchs or drug lords or tax evaders, then they shouldn’t mind a little transparency.”
The problem for Warren, as Coindesk reports, is there’s little evidence Russia has relied on crypto to evade sanctions, and it hasn’t put any resources into crypto liquidity. In fact, Russia’s efforts to evade US sanctions is almost wholly focused in the TradFi space.
One possible scenario is that Russian miners leverage the country’s plentiful energy reserves to mine bitcoin (BTC), then use unhosted wallets to move those bitcoins through a series of shady crypto transactions – likely involving chain-hopping, tumblers and peer-to-peer (P2P) marketplaces – to convert them into U.S. dollars to pay for goods. Well-known mixer Tornado Cash, which the U.S. Treasury Department sanctioned in August, has already been used to launder some $9 billion, so it may seem a feasible option.
But nearly seven months in, Russia has not gone this route. In fact, very little Russian money has been funneled through crypto. In April, the Wall Street Journal reported that daily ruble trading in cryptocurrencies spiked to 6.6 billion (US$46 million) in the days after Russia’s invasion, before quickly plummeting to 1 billion rubles ($7 million).
As of August, Russia’s crypto trading volume remains diminished, with 24-hour ruble to tether (USDT) trade volume currently ranging between 10s and 100s of millions of rubles each day, down from its peak of 4.3 billion rubles in early March.
The words of Todd Conklin, head of the Treasury’s cybersecurity portfolio, seem to have proven true. “You can't flip a switch overnight and run a G-20 economy on cryptocurrency,” he said in March. “There just isn’t enough liquidity."
If crypto did offer a potential loophole, we could expect to see Russia doing its darndest to drive through it. But thus far we have seen no signs of any concerted Russian effort – governmental or non-governmental – to boost crypto liquidity.
Instead, Russia President Vladimir Putin seems to be putting all his efforts into building alternative financial rails to counter the dollar-based SWIFT financial communications system. This includes Russia’s SWIFT competitor SPFS (System for Transfer of Financial Messages) and its Visa/Mastercard competitor, MIR payments.
Warren and others in Washington want to launder old Cold War “Red Scare” tactics as a means to push their anti-crypto agenda, but the facts on the ground don’t support their demagoguery.