US Officials Encourage Collaboration and AML Checks for Crypto

Anti-Money Laundering (AML), Blockchain & Cryptocurrency, Business Continuity Management / Disaster Recovery

Treasury and NSC leaders seek to curb Russian sanctions evasion

Dan Gunderman (dangun127) •
March 4, 2022

The Russian ruble in an image courtesy of Paolinio via Pixabay

High-ranking US officials say that while it would be nearly impossible for Russia to “flip the switch” and convert to cryptocurrency to stabilize its sanctioned economy, they warn that Russian elites and entities could still try circumvent the measures by transferring and hiding funds through the blockchain.

See also: The Ransomware Files, Episode 3: Critical Infrastructure


At an event hosted by blockchain analytics firm TRM Labs on Friday, Todd Conklin, Advisor to the Assistant Secretary of the US Treasury Department, and Carole House, Director of Cybersecurity and Secure Digital Innovation for the Council of White House National Security Department, described unprecedented federal activity over the past week that has hobbled Moscow and aims to stifle Russia’s economy as it continues its military campaign in Ukraine.


Experts discussed the growing threat of a possible cyber escalation in the conflict, with sanctioned Russian President Vladimir Putin potentially going after the United States or its Western allies by infiltrating critical infrastructure or government agencies. To allow Russia to make such maneuvers, and as its currency – the ruble – weakens, foreign policy experts have suggested that the Russians may resort to mass cryptocurrency transactions.


This aligns with previous reports of North Korea using ill-gotten crypto gains to fund its ballistic missile program, or Iran mining bitcoin to circumvent sanctions and inject hundreds of millions of dollars into its economy. species (see: US senators concerned about Russian use of crypto).


“Unable to activate a switch”


Treasury’s Conklin, however, said that to make such a pivot work, Russia would have been forced to build related infrastructure years ago.


“Russia is a G20, fiat-based economy, and now the ruble is at an all-time high,” Conklin told TRM Labs moderator Ari Redbord, the company’s head of legal and government affairs and current contributor. of ISMG. “Russia has not focused on building the rails needed to support crypto or DeFi [decentralized finance] innovation. In fact, they have shown signs of reluctance to move in this direction over the past two years as they build up their own internal reserves. So you can’t flip a switch overnight and make a G20 economy work on cryptocurrency.”


He added, “So for the Central Bank of Russia to use crypto assets in this way, it would have had to develop a large stockpile of crypto assets or the ability to use its reserves to buy crypto assets. ‘have not seen the bullishness one would expect in the crypto market heading into last week’s sanctions.


Conklin said the department had tracked a rise in markets this week, although that was timed with the Russian government banning foreign currency conversion. And Russian citizens were probably looking for an alternative to the rouble, he said.


AML controls


The National Security Council House told Redbord, himself a former senior adviser to the assistant secretary of the Treasury Department, that Russia’s actions were, in no uncertain terms, a “flagrant violation of international law.” As such, holding bad actors accountable, she said, “requires a really coordinated and holistic approach.”


So far, according to House, the Biden administration has enjoyed international support – sanctioning Russian financial institutions, implementing strict export controls on crucial technologies, focusing on Russian oligarchs, partially excluding Russian institutions of the SWIFT international banking messaging system and targeting Russian oil refining.


She praised the administration’s partnership with countries such as Australia, Canada, Japan, the United Kingdom and other EU member states, which have taken similar steps.


But one of the National Security Council’s main concerns, House said, remains ensuring that proper anti-money laundering controls exist in the crypto community, thereby ensuring the effectiveness of recent designations.


Speaking largely to TRM’s crypto customer base, House said, “The biggest vulnerability in the cryptocurrency ecosystem right now is the lack of sufficient implementation of AML controls internationally, usually due to the lack of sufficient AML regulatory and enforcement regimes.”



“TRM Talks” event held on March 4, 2022 with Treasury and NSC officials (Source: TRM Labs)

The Kremlin’s financial tactics?


According to Conklin, the Treasury Department has been targeting the assets of Russian elites for a decade — since the country first invaded Crimea in 2014.


“So we kind of know how this regime likes to evade sanctions and move money around, and now we have a significant toolkit at our disposal to deal with that,” he said. “The regime likes to layer its assets and move money around. They have a long and extensive playbook for laundering money, and at the center of their playbook is their network of international company registrations and l ‘using foreign companies and foreign people. They’re also very good at converting into other assets, including gold and foreign currency.’


And so, when asked if crypto would be part of his workaround, Conklin said, “Certainly there will be an element. It’s part of the playbook, but frankly, it’s not in top of their list.”


He also referred to the Treasury’s sanctioning of Russian crypto exchange Suex in September 2021 as an example of “how sanctions can work in the crypto ecosystem” (see: US Treasury blacklists Russian-based crypto exchange).


Calling the Moscow platform a “criminal exchange,” Conklin said Treasury actions immediately affected its liquidity rates. In fact, he said, in the year and a half before the sanctions designation, Suex transferred $1.6 billion in assets. The month he was appointed by the Treasury’s Office of Foreign Assets Control, he moved $13,000, and “now they’re not moving anything.”


Reinforced cyber-alert


On Friday, the two federal officials also discussed widespread fears that a hobbled Moscow could activate its hackers to inflict damage on the West. Such measures, officials have warned in recent days, including the targeting of critical infrastructure, could potentially trigger Article 5 obligations under the treaty of NATO members, significantly escalating the conflict.


“From SolarWinds at the end of 2020 and Log4j during the holidays, the [cybersecurity] The industry has truly been in a state of heightened demand for some time now, and I have been concerned about burnout, not just for Treasury Security Operations Center staff, but for the industry as a whole,” Conklin said. significant vulnerabilities over the past year and a half, and now we face this particular challenge.”


He said the Treasury’s role leading the sanctions effort also makes the department, or the US financial sector, a target for cyberattacks. To counter that, he said the Treasury has ramped up the pace of its intelligence sharing and remains “in perfect harmony” with the Department of Homeland Security, the Cybersecurity and Infrastructure Security Agency, the FBI and the Secret Service.


NSC’s House added: “For the [crypto] industry, which I know has faced cybersecurity challenges for many years, there are plenty of resources out there. [I] definitely encourage [exploring them] and looking at where best practices [are outlined]including the decree [that President Biden] released last summer that listed a slew of key actions agencies take to prevent significant cyberattacks, [which can apply] to your institutions and exchanges.”


She told the community, “You are on the front line of this activity. … These actors are looking for easy places to exploit in order to facilitate movement, and you are the people in the best position to detect and then report this activity.”

James V. Hayes