Hannah Lang
– Cryptocurrency evangelists are on the defensive amid warnings from US and European lawmakers that digital asset companies are failing to comply with Western sanctions imposed on Russia following the country’s invasion of Ukraine.
The criticism has seen the crypto industry struggle to regain control of the narrative, with many executives frustrated that the compliance regimes in place at top exchanges like Coinbase and Binance are being questioned.
At the same time, increased scrutiny could be a turning point for the sector to prove that this is not the “wild west” of finance as portrayed by regulators.
“This is an opportunity for the industry to show that it is mature and knows how to properly manage risk,” said Matt Homer, chief executive of venture capital firm Nyca Partners.
The crypto community was largely taken by surprise when the United States and its allies launched sweeping sanctions against Russian banks, elites and other state-owned companies.
Unlike other payment companies, cryptocurrency exchanges have rejected calls to turn off all Russian users, saying it goes against the industry’s libertarian values, raising concerns from European officials and US lawmakers that digital assets could be used to circumvent sanctions.
US Senator Elizabeth Warren said many cryptocurrency exchanges and wallets have lax enforcement and do not collect customer identities.
But the leaders of exchanges including Kraken, FTX, Coinbase and Gemini, as well as industry trading groups, say this is not the case.
“That rhetoric is wrong,” said Elena Hughes, director of compliance for Gemini, adding that the company vets clients like any other financial firm. “We’ve dedicated a lot of resources to making sure we have the right controls(s) in place (and) that we’re doing everything right.”
The story goes on
On Monday, Coinbase posted a lengthy blog detailing its controls, noting that it has blocked more than 25,000 addresses associated with Russian individuals or entities believed to be engaged in illegal activities.
FTX US, a Chicago-based cryptocurrency exchange, said it uses multiple regulated licenses and continues to “strictly comply and comply” with all sanctions.
“For the most part, most of these companies already have very robust systems in place and it’s very easy for them to comply with sanctions, just like any other financial institution,” said Kristin Smith, Executive Director of the Blockchain Association.
“EXISTENTIAL” RISK
Since the beginning, the crypto community has touted digital assets as a vehicle for anonymous transactions, and a host of federal measures to combat fraud, money laundering, and unregistered coin offerings have only reinforced the notion that crypto companies tend to break the law.
But as the value of all cryptocurrencies topped $3 trillion last year and more Americans are investing in the asset class, the industry is trying to shed its shady image by improving its overall compliance authority.
While lawmakers are worried about evading crypto sanctions, Biden administration officials have said they do not believe digital assets can be used to circumvent all restrictions.
The US Treasury has reached out to several cryptocurrency exchanges and trading groups to explain its expectations for sanctions compliance and to set up a line of communication if questions arise, a person familiar with the matter said.
The person, who spoke on condition of anonymity, added that officials were impressed with most firms’ compliance controls.
For many exchanges, the risk of non-compliance in their current form is “existential,” said Charles Delingpole, chief executive officer of ComplyAdvantage, an anti-money laundering tech company that works with several high-profile crypto firms, including Binance and Binance. Twins.
“Not just in terms of a fine (and) deprivation of access to dollar clearing,” he said. “If you launder money, which is the flip side of that, there is a huge public backlash against companies that are thought to be facilitating illegal money flows.”
(Reporting by Hannah Lang in Washington; Editing by Michelle Price and Paul Simao)