During a Senate hearing Thursday, Sen. Elizabeth Warren introduced a new bill that would authorize the president to sanction foreign crypto firms that are conducting business with sanctioned Russian entities, addressing the concerns held by several representatives that oligarchs could move and conceal their assets through crypto networks.
But Michael Chobanian, the founder of Ukraine’s largest crypto exchange and one of the hearing’s witnesses, told members of Congress that it would be extremely difficult for Russian oligarchs to use crypto to evade economic sanctions and that efforts to regulate cryptocurrency markets should not undermine the ability of Russian citizens to “bring down” the Putin regime.
“Crypto provides new payment options for criminals and cheats,” Warren said during the Senate Committee on Banking, Housing, and Urban Affairs hearing, which focused on the role of cryptocurrency in illegal finance. In attendance were a spectrum of witnesses, including Chobanian, who has worked closely with Ukraine’s government to facilitate its wartime crypto fundraising campaign, and Michael Mosier, former acting director of the Treasury’s Financial Crimes Enforcement Network (FinCEN), which recently flagged crypto as a potential albeit limited method for avoiding sanctions.
Warren’s legislation, called the Digital Asset Sanctions Compliance Enhancement Act, has been cosponsored by nine members of the banking committee, including Sen. Mark Warner. It comes one week after President Joe Biden signed an executive order calling for a “whole-of-government approach” to crypto regulation.
“We know other countries have used crypto to avoid sanctions,” Warren said. The senator noted that Iran, Venezuela, and North Korea have circumvented sanctions via crypto. She said that last year, 74% of the revenue generated by ransomware extortion, amounting to more than $400 million in cryptocurrency, was linked to Russian-affiliated hackers, according to blockchain data platform Chainalysis.
But Chobanian, founder of Kyiv-based Kuna Exchange, which has provided the framework for Ukraine’s crypto donation efforts, presented the positives of using digital currencies in wartime. The country’s crypto crowdfund has raised more than $50 million since Ukraine’s digital minister Mykhailo Fedorov announced it on Feb. 26, and now the campaign has a goal of $100 million, Chobanian said. Under the authority of the Ministry of Digital Transformation and the Ministry of Defense, Kuna has been acting as Ukraine’s “crypto bank,” converting donations into currencies such as the euro, as well as directly purchasing goods with crypto. The Ukrainian army has used these funds to purchase more than 5,000 bulletproof vests, 500 helmets, and 410,000 packed lunches, according to a government report.
In the besieged city of Mariupol, which has been devastated by Russian attacks, including the bombing on Wednesday of a theater used to shelter more than a thousand civilians, “the internet still works there, so we can supply crypto there to buy food,” Chobanian said.
The hearing revealed not only crypto’s polarizing effects — Committee Chair Sherrod Brown said that digital assets make it “easier to commit crimes and facilitate terrorism” — but also how lawmakers are trying to regulate crypto without excluding the US from its supposed benefits.
“Lawmakers should not harm the United States’ reputation for fostering technological innovation,” Sen. Pat Toomey said. “A lack of clarity is undermining that tradition and driving innovation abroad.”
Jonathan Levin, CEO of Chainalysis, testified that “the transparency of blockchains enhances the ability of policymakers and law enforcement to detect, disrupt, and, ultimately, deter illicit activity.” Chainalysis has won numerous government contracts to provide blockchain tracing services to federal agencies such as the FBI and Treasury Department.
At one point, Warren pressed Levin on the hypothetical ease with which Russian oligarchs could launder funds through crypto networks and strategies such as chain-hopping, or rapidly transferring funds across multiple cryptocurrencies. Levin claimed that chain-hopping would not allow an oligarch to hide their wealth. Warren said she was “surprised” by Levin’s answer, considering the nature of Chainalysis’s work.
Chobanian stated that it is “impossible to transfer large amounts of money from fiat into crypto,” as it would be difficult for oligarchs to quickly convert millions of rubles into crypto without detection. “Even if they do, there’s nothing [Russian oligarchs] can do with it. For them, it’s just numbers, which are pretty useless.”
Additionally, Chobanian said he hopes that efforts to enforce sanctions will not cut off regular Russian citizens from crypto networks. “There are a lot of Russians in and outside of Russia who rely on crypto. These people are the opposition to the Putin regime,” he said. Chobanian noted that payment suspensions by Visa and Mastercard have increased Russians’ reliance on crypto and that it’s imperative to “still allow the opposition to survive both within Russia and outside.”