US senator claims Biden administration uses crypto as ‘scapegoat’ to mask failures in halting illicit finance

In a pointed critique during a Senate hearing on April 9, Senator Tim Scott accused the current US administration of making digital assets the “scapegoat” in efforts to combat terrorism financing, ignoring more significant, more traditional sources of such funding, particularly those benefiting Iran.

Addressing Deputy Treasury Secretary Adewale Adeyemo, Scott voiced concerns over the Treasury’s exclusive requests for expanded authority over cryptocurrencies to the Senate Committee on Banking, Housing, and Urban Affairs.

He argued that this narrow focus sidelines significant sources of terrorism funding, including Iran’s $35 billion in oil exports and an additional $16 billion in US hostage relief and electricity waivers, which, according to Scott, facilitate the Iranian government’s misuse of funds.

According to Scott, the focus on crypto misses the “elephant in the room” as the scope of the conversation regarding illicit financing is “far larger than digital assets.”

Strict oversight needed

In response, Deputy Treasury Secretary Adeyemo defended the focus on digital assets, stating the Treasury’s current lack of authority makes it challenging to restrict crypto transactions effectively compared to traditional financial transfers.

Adeyemo emphasized the distinct challenges posed by crypto, including Russia’s stablecoin use to avoid sanctions and North Korea’s reliance on mixers to obscure financial transactions.

Adeyemo outlined the Treasury’s request for additional powers over crypto, a proposal made in November that aims to introduce secondary sanctions against foreign crypto providers, tighten existing regulations, and address risks posed by international crypto platforms.

Adeyemo also addressed Scott’s concerns about the abuse of humanitarian funding and said the US intends to remain committed to humanitarian relief despite Iran’s known abuse of funding.

In his prepared remarks, Adeyemo explained how the Treasury wants additional authority over crypto. The Treasury’s formal request, dating back to November, focuses on three points — to introduce a secondary sanctions tool aimed at foreign crypto providers, tighten existing authority over crypto, and target jurisdictional risk from crypto platforms based internationally.

Other remarks

The call for enhanced oversight of digital assets also saw support from other senators, who believe the sector needs tighter regulations.

Committee Chairman Sherrod Brown stressed the importance of crypto platforms adhering to the same regulatory standards as traditional financial institutions, particularly in combating terrorist financing.

Senator Bob Menendez raised concerns about the ease of converting oil proceeds to crypto, to which Adeyemo reiterated the necessity for more comprehensive authority over the sector.

Senator Bob Menendez raised concerns that Iran could convert the proceeds from oil sales to crypto. Adeyemo reiterated the need for more comprehensive authority over the sector in response.

Senator Elizabeth Warren also contributed, highlighting Iran’s role as a blockchain validator and its potential to earn millions in transaction fees, including from US transactions. Warren called for the extension of financial institution regulations to blockchain validators to prevent abuse.

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