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WASHINGTON — The Biden administration warned on Monday that digital currencies pose a threat to America’s sanctions program, saying in a new report that the United States must modernize how sanctions are enforced so that it remains an effective national security tool.
The warning was included in a six-month Treasury Department review of the country’s sanctions program, which has been used more aggressively as a lever in international diplomacy in recent years. The focus on digital currencies coincides with a management-wide effort to determine how to regulate new financial technology without stifling innovation.
“Technological innovations such as digital currencies, alternative payment platforms, and new ways to hide cross-border transactions potentially reduce the effectiveness of American sanctions,” the Treasury report said. “These technologies offer malicious actors opportunities to hold and transfer funds outside of the traditional dollar-based financial system.”
The Treasury Department also expressed concern that America’s enemies are taking steps to reduce their reliance on the US dollar, saying new digital payment systems could worsen this trend and erode the strength of American sanctions.
The United States has more than 9000 sanctions, largely to punish countries like North Korea, Iran, and Venezuela for facilitating terrorism, violating human rights, or engaging in other illegal acts. The strength of the US dollar and its role as the world’s reserve currency means that the US can cut countries, groups or individuals from most of the global financial system at its discretion. This intensified efforts Find new ways to escape America’s sanctionsincluding using digital currencies that do not pass through the traditional banking system.
According to the law firm Gibson, Dunn & Crutcher, the use of sanctions during the Trump administration has soared to record levels, with an average of more than 1,000 new appointments per year. This year, the Biden administration is at a pace of 900 sanctions, making it the third-highest total on record.
The seven-page report gave little detail on how the Treasury plans to adapt to the new digital financial architecture spreading around the world. Recommendations included investing in new technology and hiring staff with expertise in digital assets.
A senior Treasury official told reporters on Monday that an important measure to prevent sanctions from escaping is greater coordination with other countries to make it harder for cryptocurrencies to be converted into government-issued money.
Last month, the Biden administration eliminated the growing problem of ransomware attacks. expand the use of sanctions hacking digital payment systems that allow such criminal activity to flourish and threaten national security.
The President’s Financial Markets Working Group is expected to issue a separate report with regulators this year. recommendations for stablecoins, an asset-backed digital currency that is growing in popularity.
The sanctions review was led by Wally Adeyemo, assistant secretary of the Treasury. The report avoided evaluating specific sanctions against countries or individuals. Instead, he offered broad guidelines for developing the program that the Treasury conducted in coordination with the State Department and the National Security Council.
Other recommendations included establishing a more systematic approach that could remove some of the sanctions. The Treasury Department also said sanctions should be more targeted to “minimize any potential negative impact on others.”
The Treasury Department is assessing the sanctions the group has imposed on the Taliban following the overthrow of the government. Afghanistan this summer and working to ensure that humanitarian aid can still enter the country.
The agency currently has a leadership vacuum, as Senate Republicans blocked the approval of President Biden’s two nominees – Brian E. Nelson and Elizabeth Rosenberg, as top enforcement officials. The Treasury Department has not had an undersecretary for terrorism and financial intelligence since Sigal Mandelker stepped down from his post in late 2019.
A senior Treasury official said on Monday the ministry must approve Mr. Biden’s nominations for the ministry to properly fulfill its mandate of protecting national security.
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