US Senators Bring Cryptocurrency Regulation Into the Spotlight


A series of recent statements from key financial regulators and US senators again put crypto regulation in the spotlight. In this post, we summarize several recent developments.

On March 2, 2022, several members of the Senate Banking Committee sent a lyrics to the US Department of the Treasury. The letter expresses concern that “rogue states and other actors may use digital assets and alternative payment platforms as a new means of concealing cross-border transactions for nefarious purposes.” Citing the Russian invasion of Ukraine and the recent economy sanctions imposed on Russia, the letter seeks “information on the steps Treasury is taking to enforce sanctions by the cryptocurrency industry.” In particular, the letter speculates that “Russia may use cryptocurrencies to circumvent sweeping new sanctions it faces from the Biden administration and foreign governments in response to its invasion of Ukraine.” The letter also cites innovation in the DeFi space that could also be used to evade recent sanctions. The senators’ letter concludes with a series of questions about the actions Treasury is taking to enforce sanctions on the cryptocurrency industry and inhibit the use of cryptocurrency to evade sanctions.

The next day, on a March 3 listening on monetary policy before the Senate Banking Committee, Federal Reserve Chairman Pro Tempore Jerome Powell faced questions on a number of issues, including sanctions compliance and cryptocurrencies. Responding to senators’ questions, Chairman Powell admitted that there is concern that cryptocurrencies could be used to evade sanctions, although he had no particular knowledge that such evasion had taken place. He also called on lawmakers to adopt a “legal framework that would really take away as much as possible. . . the possibility that people could use cryptocurrencies without backing as a way to evade the law, or to finance terrorism and hide their ill-gotten gains.”

Finally, in a opinion piece published in the Washington Post on March 6, Treasury Department Undersecretary for Domestic Finance Nellie Liang called for comprehensive federal regulation of stablecoins. She cataloged a number of perceived risks to consumers and the financial system as a whole associated with the proliferation of stablecoins, citing the recent President’s Task Force report in this asset class. Undersecretary Liang admitted that stablecoins “that are well designed and properly regulated could provide significant benefits to our payment system.” But comparing stablecoins to other financial products associated with the 2007 financial crisis, Deputy Secretary Liang also called on Congress to “act quickly to help ensure these risks do not harm consumers or the broader economy.”

Copyright © 2022, Hunton Andrews Kurth LLP. All rights reserved.National Law Review, Volume XII, Number 67