At Hearing, Warren Calls for Closing Gaps in Crypto Anti-Money Laundering Rules As Treasury Requested
“[I]n the traditional banking world, if a bank transacts somebody laundering money, then they are breaking the law. But validators in the crypto world don't have that same set of rules.”
“If we are going to create new on ramps, increasing traffic… then we need a regulatory framework that will put the rules for Anti-Money Laundering in place so that we do not have more opportunities for Iran and terrorists and drug lords and human traffickers to make more money. We have to get those AML rules in place.”
Washington, D.C. – At a hearing of the Senate Committee on Banking, Housing, and Urban Affairs, Senator Elizabeth Warren (D-Mass.) asked Deputy Secretary of the Treasury Adewale Adeyemo about gaps in Anti-Money Laundering (AML) rules that allow sanctioned entities like Iran to earn revenue processing crypto transactions.
Senator Warren highlighted that validators, middlemen between the payer and receiver in crypto transactions, are not subject to the same AML rules as the traditional banking industry. This allows these middlemen to process and profit off crypto transactions for bad actors, and for Iran and other sanctioned entities to earn money validating transactions themselves.
Senator Warren highlighted a letter the Treasury Department sent to Congress in November 2023 requesting Congress’ help in extending AML rules to validators and other entities to crack down on crypto illicit finance. Senator Warren warned that without the comprehensive AML protections the Treasury Department requested, any regulatory framework for stablecoins risks creating more opportunities for bad actors to use cryptocurrency as a source of funding. Senator Warren raised the same issue in her letter to the House Financial Services Committee.
Transcript: “An Update from the Treasury Department: Countering Illicit Finance, Terrorism and Sanctions Evasion”
U.S. Senate Committee on Banking, Housing, and Urban Affairs
April 9, 2024
Senator Elizabeth Warren: Thank you very much, Mr. Chairman. It is good to see you, Deputy Adeyemo. And, thank you, Senator Tillis. I just want to follow up in the same area. And if I can, I want to lay a little background here.
In November, after reports that Hamas had received millions of dollars in crypto funding in the months before its terrorist attack on Israel, Treasury wrote a letter requesting Congress's help in closing the gap in our Anti-Money Laundering rules. Deputy Adeyemo, can you explain why you sent us this letter? What were you seeing that caused you to send us this letter asking for us to change the law?
Mr. Adewale O. Adeyemo, Deputy Secretary, Department of the Treasury: Senator, as I spoke to my team about increasingly targeting Hamas' financial network, what I was seeing was the fact that as we went after their traditional resources in banks, that they were going to turn to other means of financing – that could frankly even be faster and harder for us to track – in cryptocurrency.
Yesterday, I had an opportunity to sit down with the families of Americans who are being held hostage by Hamas today. And they asked me what, if anything, can we do to cut off their finances? I explained to them the actions we are taking in the traditional financing sector, but told them, frankly, that one of the places where we need additional tools is to be able to make sure that we don't allow Hamas to build up assets in the digital ecosystem using virtual currencies that are hard for us to track. Because that is money they will use to continue to come after not only Israel, but also to destabilize the region.
Senator Warren: How is it right now that Hamas has access to money, or some form of financing themselves?
Deputy Secretary Adeyemo: They are increasingly, in my view, turning to alternative means of financing, given what we have done in terms of their ability to use the traditional financing system.
Senator Warren: So what does that mean, “alternative means of financing”?
Deputy Secretary Adeyemo: One of those is cryptocurrency. And cryptocurrency is a means that, while we are using every tool we have, we need additional tools to go after.
Senator Warren: And it’s not just Hamas and terrorists that are using crypto financing. North Korea, ransomware gangs, drug traffickers, distributors of child sexual abuse materials – name your bad guy and crypto is the way they can move money around.
Now, your letter you sent to Congress follows a basic principle. Activities with similar functions and similar risks should follow similar rules. So, I want to look at an example of that – I want to look at one of the middlemen examples, validators. Validators are the middlemen between the payer and receiver. And they help process crypto transactions. In the traditional banking world, if a bank transacts with somebody who is laundering money, then they are breaking the law. But validators in the crypto world don't have that same set of rules. Are there crypto validators right now that are processing transactions for North Korea and pocketing a fee for each of those transactions? Same for Hamas, same for drug lords, and child traffickers.
Deputy Secretary Adeyemo: There is reporting that I am familiar with that’s public about the fact that those threat actors you mentioned are conducting that type of activity.
Senator Warren: So, bad guys can use crypto right now because we don't have the right rules to keep them out. But I think it’s worse than that.
We know, for example, that Iran, one of Hamas' biggest funders, makes millions of dollars validating transactions for others that have no connection to Hamas or Iran. So, if I wanted to send $1,000 worth of crypto to you, Mr. Secretary, is it possible that when I send it – to send this – that Iran could be our validator and would be collecting a fee processing our crypto? All of that without either one of us knowing it?
Deputy Secretary Adeyemo: Senator, a transaction like that is certainly possible.
Senator Warren: So Iran, which is subject to all kinds of sanctions, is moving money through crypto and actually making millions of dollars validating crypto transactions for Americans and for everyone else, all because we don't have the right Anti-Money Laundering rules in place?
One more quick question. If the crypto market grows and the number of crypto transactions increases, does that mean more money would likely end up in Iran's pockets?
Deputy Secretary Adeyemo: Everything we have seen says that when markets grow, threat actors use them more, and we should expect that is what would happen here as well.
Senator Warren: Okay, and more activity, more money. Currently the House is working on a bill to create a regulatory framework for stablecoins. Stablecoins make it easier to convert dollars into crypto and crypto into dollars. So, they are an on-ramp into the crypto world. If we are going to create new on ramps, increasing traffic, which is exactly what the House bill does, then we need a regulatory framework that will put the rules for Anti-Money Laundering in place so that we do not have more opportunities for Iran and terrorists and drug lords and human traffickers to make more money. We have to get those AML rules in place.
Thank you, Mr. Secretary.
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