With help from Derek Robertson
How are governments supposed to stop crypto from being used to evade the rules?
It’s a growing point of tension as regulators increasingly focus on the technology. One example is the continuing fallout from the Treasury Department’s sanctioning of Tornado Cash, a decentralized protocol that obscures the provenance of crypto tokens. In recent days, there’s news of an arrest of a suspected Tornado Cash developer in the Netherlands and a potential legal challenge to the sanctions in Washington.
But that ongoing hubbub has distracted from another development with implications for crypto compliance: Iran appears to be openly using cryptocurrency to evade U.S. sanctions.
Last week, a state-affiliated media outlet in Iran, citing a tweet from a senior trade official, reported that the country’s government had purchased $10 million worth of imports using cryptocurrency, with plans to make wider use of crypto and smart contracts by the end of September. Exchanging value over a cryptocurrency network lets Iran bypass the traditional banking system, where unauthorized international transactions would be blocked.
To make sense of the news, I caught up with Richard Goldberg, a former National Security Council member on the Iran desk, now a senior advisor to the Washington think tank Foundation for Defense of Democracies, which supports a hard line against Iran.
This is not the first time crypto has been used to evade sanctions. What makes this development different?
“This is the most direct, in-your-face flouting of U.S. sanctions by a regime using cryptocurrency to date,” Goldberg said.
If you’re trying to evade sanctions, what’s the point of advertising that you’re doing it?
“As a test case,” he said. “they want to see, what does the United States do in response? What does Europe do in response?”
Why now?
Goldberg said that in recent months, amid uncertainty about the future drift of U.S.-Iran relations, he’s observed stepped-up efforts by Iran’s government to position itself to weather sanctions for the long haul.
Rising oil prices, as well as some relaxing of sanctions as the Biden administration explores reinstatement of the nuclear deal that was abandoned under Donald Trump, have given Iran’s government breathing room to roll back subsidies on some sanctions-ravaged industries, he said.
Cryptocurrency offers another potential tool in its financial fight with the U.S. and its allies.
What does this mean for the industry?
As the Tornado Cash sanctions demonstrate, the Treasury Department is already stepping up crypto-related enforcement. Last month, the New York Times reported that Treasury is investigating the crypto exchange Kraken for possible violations of Iran sanctions, with a fine likely.
Goldberg, who also hosts a crypto-themed podcast, “Cryptonite,” expects that the Iran news will only add to Treasury’s resolve. As a result, he predicts that crypto businesses will have to invest much more in the sorts of compliance programs that exist at other large financial institutions.
“I’m confident they have enough money where they’ll find various technical situations to mitigate” sanctions evasion, he said. “They won’t be able to eliminate, but they can mitigate.”
The more money that pours into the development of the metaverse, the more traditional institutions are paying attention — including the Commodity Futures Trading Commission, one of the commissioners of which, Caroline Pham, appeared on a panel yesterday hosted by the Technology Policy Institute titled “Are the Metaverse and Web 3.0 Real or Hype and What are the Policy Issues?”
Pham demonstrated that as nascent as the technology is, top regulators are paying it close attention (although, as she noted, she spoke for herself and not on behalf of the CFTC). Regarding the potential entanglement of crypto and the metaverse, she said “Web3, I think, would unlock its full potential” when it comes to creating a durable sense of digital property; regarding safety and regulation in the metaverse she voiced the familiar concern on the Hill about the potential for new forms of harassment. The discussion even reached the realm of the geopolitical, with Pham saying she’s “very concerned” about the national security risk of non-state communities sprouting up in virtual worlds, armed with their own currencies.
She also went back and forth with the crypto-skeptic American University professor Hilary Allen defending the agency’s track record on regulating crypto, especially amid widespread belief that the industry would rather deal with her agency than the SEC, perceived as more dogged and crypto-skeptic itself.
She noted that the CFTC has already brought more than 50 enforcement actions against crypto companies, saying “anybody who thinks the CFTC is going to take a light touch to regulation” is mistaking its mandate to promote “responsible innovation” for a laissez faire approach. — Derek Robertson
The emptying (or not) of a losing campaign’s bank account tells a story: Who needs, or wants, to be paid back, and whether a candidate is keeping some gold in the vault for future ambitions.
When outgoing Rep. Madison Cawthorn (R-N.C.) published his most recent disclosure, it contained one uniquely telling detail. The extremely online 27-year-old, who lost the Republican primary for his seat in May, still currently holds somewhere between $150,000 and $350,000 in the Ethereum cryptocurrency, as well as an indeterminate amount of Let’s Go Brandon Coin — an anti-Biden “meme coin” that began trading last November and even attempted (unsuccessfully) to sponsor a NASCAR driver bearing the same name.
Presumably Cawthorn’s campaign has taken a bath on its ether holdings like everyone else, although the coin did experience a small rally this month. As for Let’s Go Brandon Coin: Most crypto platforms stopped tracking it many months ago, when its value plummeted to miniscule fractions of a penny from its all-time high of… well, less miniscule fractions of a penny. (Earlier this year, Cawthorn was the subject of a crypto-world inquiry into whether he engineered a pump-and-dump scheme for the mostly worthless coin).
Cawthorn’s campaign ending with some still in the coffers is, if nothing else, a memento of that fervid period of late 2021 and early 2022, when every other Super Bowl commercial promised a path to crypto wealth and viral videos of the “Let’s Go Brandon” chant abounded. Cawthorn is now finding himself, like many other crypto punters, getting off the rollercoaster with his pockets a little lighter. — Derek Robertson
Stay in touch with the whole team: Ben Schreckinger ([email protected]); Derek Robertson ([email protected]); Konstantin Kakaes ([email protected]); and Heidi Vogt ([email protected]). Follow us @DigitalFuture on Twitter.
Ben Schreckinger covers tech, finance and politics for POLITICO; he is an investor in cryptocurrency.
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