Summary of the Digital Assets Sanctions Compliance Improvement Act – Finance and banking

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United States: Summary of the Digital Asset Sanctions Compliance Improvement Act

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Earlier today, Senators Elizabeth Warren (D-MA), Jack Reed (D-RI), Mark Warner (D-VA) and several of their colleagues introduced the Digital Asset Sanctions Compliance Enhancement Act of 2022. The draft The bill aims to crack down on Russian elites using bitcoin and other digital assets to evade sanctions imposed following the invasion of Ukraine. During a congressional hearing earlier this month, Senator Warren warned that “millions of transactions are taking place that are completely unregulated, with no one checking who gets what” and that “while sanctions can make very difficult task for Russian businesses, political leaders and billionaires to move money into the mainstream financial system, there is another shadowy, unregulated world they can turn to.”

Among other provisions, the bill:

  • Give the President the power to apply secondary sanctions to foreign exchanges that do business with sanctioned individuals, companies or government entities – which would force those foreign exchanges to choose between doing business with the United States or Russians sanctioned.

  • Grant the Treasury Department the authority to prohibit cryptocurrency exchanges under US jurisdiction from processing transactions involving Russian-affiliated addresses.

  • Require U.S. taxpayers engaged in foreign cryptocurrency transactions over $10,000 to report those holdings to the Treasury Department’s Financial Crimes Enforcement Network.

Within 90 days of the bill’s passage, the president would submit a report to Congress identifying any foreign person who operates a crypto exchange or otherwise facilitates digital asset transactions and who has also supported sanctions evasion by Russian persons appointed to the Office of Foreign Assets Control. (OFAC) sanctions list. The president could sanction such stock market operators under the International Emergency Economic Powers Act – unless there is a national security interest in not doing so.

The Treasury Department would be authorized to prohibit crypto exchanges operating in the United States from transacting or working with crypto addresses belonging to individuals based in Russia if deemed to be in the national interest. The Secretary of the Treasury should report this decision to Congress within 90 days.

Finally, within 90 days of the bill’s enactment, US taxpayers would be required to report any offshore digital asset transactions over $10,000 to the Financial Crimes Enforcement Network (FinCEN). The Treasury Secretary should also report to Congress — and make public — any digital asset trading platforms that OFAC deems to pose a high risk of sanctions evasion, money laundering or other illicit activities.

Senator Warren raised concerns about the cryptocurrency industry and called for tighter regulation of the crypto market to ensure that countries, drug traffickers, cybercriminals and tax evaders cannot not escape the economic consequences. While the cryptocurrency industry is responsible for enforcing sanctions, Senator Warren has regularly criticized many crypto exchanges and wallets for not collecting information about the identity of their customers, screening their platforms for illicit activities or report sanctions violations.

The cryptocurrency and digital asset industry has argued that it would be difficult for an oligarch to hide even relatively small sums of money due to the various blockchain tracking tools that exist. And as such, any form of digital asset on the blockchain is highly traceable.

In addition to Senator Warren, the bill is co-sponsored by seven Democratic senators. A companion bill in the House will be introduced by Rep. Brad Sherman (D-CA).

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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