Modest uptick in US crypto illicit finance, but transactions small

US officials have observed an uptick in the use of digital assets to facilitate illicit finance since Russia invaded Ukraine, but the transaction volume is too small to play a big role in helping Moscow evade sweeping sanctions, a senior Treasury official said on Friday.

Nellie Liang, Treasury undersecretary for domestic finance, said the current state of digital assets would not be large enough to run an economy on, and that the ecosystem is too underdeveloped for individuals to effectively evade sanctions using such assets.

"The transaction size we've seen is fairly small," Liang told Reuters in an interview. "Of course, we recognize we may not see everything, but there is a fair amount of oversight. At this point, we just don't see that it could be used in a large-scale way to evade sanctions."

Liang said the Treasury has been studying the issue for years, and that Group of Seven advanced economies and other countries have also raised concerns about use of digital assets for illicit finance, making effective enforcement imperative.

"People are very aware of it, and paying attention to it," she said. "While it's growing because the use of crypto is growing, its share as a medium for illicit finance is not anywhere as large as just using cash."

US Treasury Secretary Janet Yellen earlier this month vowed to address potential gaps in tough sanctions slapped on Russia following its Feb. 24 invasion of Ukraine, and said there were anti-money laundering laws in place to prevent members of Russia's elite from using cryptocurrencies to evade those measures.

Russia calls its actions in Ukraine a "special military operation" that is not designed to occupy territory but to destroy its neighbor's military capabilities.

Despite repeated assurances from Biden administration officials that crypto could not be used at a large scale to help Russia circumvent sanctions, several Democratic lawmakers, including Senator Elizabeth Warren, have expressed concern that Russian oligarchs could turn to digital asset platforms, having been shut out of the traditional financial system.

Warren, along with 10 other Democratic senators, introduced a bill Thursday that would enable the president to sanction foreign cryptocurrency firms doing business with sanctioned Russian entities and prevent them from transacting with US customers. 

Liang, who will lead Treasury's effort to implement President Joe Biden's recent executive order on cryptocurrencies, said she had not yet seen the legislation.

That executive order directed the Treasury along with the Justice Department and other agencies to study the legal and economic ramifications of creating a US central bank digital currency and author reports on the role that cryptocurrencies will play in the evolving payments landscape.