The US Treasury Deputy Secretary Adewale Adeyemo has expressed concerns about Russia’s increasing use of alternative payment mechanisms, such as Tether’s USDT stablecoin, to bypass economic sanctions. This was mentioned in Adeyemo’s written testimony to the Senate Banking, Housing, and Urban Affairs Committee on April 9. It has been reported that malicious actors have utilized Tether’s stablecoin for illicit activities, prompting the US and UK governments to launch a joint investigation into crypto transactions worth over $20 billion that may have violated Russian sanctions involving the stablecoin.
Despite the rising concerns, Tether has assured that it remains committed to compliance standards and is cooperating with law enforcement agencies to combat illicit financial activities. On the other hand, Paul Grewal, the Chief Legal Officer of Coinbase, believes that stablecoin legislation could assist the US government in addressing this issue. Grewal emphasized the importance of centering dollar-denominated stablecoins in the US and highlighted the need for regulatory measures to manage reserve management rules and redemption rights.
Adeyemo’s testimony also pointed out that terrorist organizations like Al Qaeda and the Palestinian Islamic Jihad (PIJ) are taking advantage of innovations in the crypto space to circumvent the traditional financial system. He highlighted the challenges of identifying actors who are increasingly using virtual currency to conceal their identities and move resources. Adeyemo stressed the necessity for the US to establish a robust enforcement regime to combat illegal activities as terrorist groups and rogue states turn to digital assets.
The Treasury Department has put forward proposals to the Committee aimed at enhancing the government’s capabilities in countering terrorist financing. These proposals include the implementation of a secondary sanctions tool, modernization and reinforcement of existing authorities, and addressing jurisdictional risks associated with offshore digital asset platforms. Adeyemo asserted that these reforms are essential for determining how US authorities can act extraterritorially when digital asset entities threaten national security while exploiting the financial system. Furthermore, these reforms are intended to level the playing field for US-based Virtual Asset Service Providers (VASPs).