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U.S. President Biden Preparing to Announce Cryptocurrency Approach

U.S. President Joe Biden began 2022 planning to issue an executive order that provides a framework for how the United States will officially approach cryptocurrency. On Monday, Bloomberg reported that the the order is expected to be issued this week.

“The Biden administration is under pressure to play more of a coordinating role in Washington’s approach to the asset class, as industry executives bemoan what they say is a lack of clarity on rules,” Bloomberg reported. “The executive order, which has been in the works since last year, will require federal agencies across the government to report later this year what they’re doing regarding digital tokens… . The plan is expected to begin carving out roles for agencies across the government, from the State Department to the Commerce Department.”

The Associated Press noted that the potential executive action acknowledges that cryptocurrency will be a long-term part of the world economy. The roles that various agencies will address will include looking at alignment of cryptocurrency laws and regulations with U.S. allies, and the possibility of developing a U.S. government-backed cryptocurrency pegged to the dollar.

The order will also look at how crypto can be used to avoid taxes and its use for illicit purposes—and what regulations or laws are needed as a result.

“U.S. Treasury Secretary Janet Yellen last year warned about an ‘explosion of risk’ from digital markets,” Reuters reported, “including the misuse of cryptocurrencies, but said new financial technologies could also help fight crime and reduce inequality.”

While the executive order was being prepared well before Russian troops invaded Ukraine, the potential use of cryptocurrencies to evade economic sanctions imposed against Russia and Russian individuals will serve as a backdrop to any announcements.

Last week, U.S. Senators Elizabeth Warren (D-MA), Jack Reed (D-RI), Mark Warner (D-VA), and Sherrod Brown (D-OH) sent a letter to the U.S. Department of Treasury about whether its Office of Foreign Assets Control (OFAC) had effective guidelines in place to enforce sanctions on cryptocurrency. 

"Strong enforcement of sanctions compliance in the cryptocurrency industry is critical given that digital assets, which allow entities to bypass the traditional financial system, may increasingly be used as a tool for sanctions evasion," according to the letter obtained by Reuters. 

The U.S. Treasury Department’s Financial Crimes Enforcement Network sent an alert to its network of financial institutions on Monday, warning them to be on the lookout:

“The Financial Crimes Enforcement Network (FinCEN) is alerting all financial institutions to be vigilant against efforts to evade the expansive sanctions and other U.S.-imposed restrictions implemented in connection with the Russian Federation’s further invasion of Ukraine. … This alert provides select red flags3 to assist in identifying potential sanctions evasion activity and reminds financial institutions of their Bank Secrecy Act (BSA) reporting obligations, including with respect to convertible virtual currency (CVC).

“It is critical that all financial institutions, including those with visibility into CVC flows, such as CVC exchangers and administrators… identify and quickly report suspicious activity associated with potential sanctions evasion, and conduct appropriate risk-based customer due diligence or, where required, enhanced due diligence.”

The Wall Street Journal interviewed Braddock Stevenson, counsel in the Fintech & Payments and Investigations & White Collar Defense practices at Pauls Hastings who who previously served as deputy associated director of FinCEN's Enforcement Division.

“While this will likely result in the reporting of legitimate transactions, it’s clear that FinCEN wants the information first and will ask questions later,” Stevenson said.