The Treasury wants to keep its sanctions toolbox effective. That apparently means working with the crypto industry.
On October 18, the Treasury published a review of sanctions for 2021. While it highlights crypto as a threat, it also stresses the need for the department to engage with the crypto community.
Administered by the Treasury's Office of Foreign Asset Control, the U.S. sanctions program has expanded drastically since 9/11. As the Treasury notes, "This tool rests on the formidable strength of, and trust in, the U.S. financial system and currency."
At several points, the review expresses concerns that excessive or badly designed sanctions programs ultimately undermine that strength and trust.
Cryptocurrency has long faced the argument that evading sanctions is one of the field's primary use cases. Indeed, today's review highlights this threat:
"Technological innovations such as digital currencies, alternative payment platforms, and new ways of hiding cross-border transactions all potentially reduce the efficacy of American sanctions. These technologies offer malign actors opportunities to hold and transfer funds outside the traditional dollar-based financial system. They also empower our adversaries seeking to build new financial and payments systems intended to diminish the dollar’s global role. We are mindful of the risk that, if left unchecked, these digital assets and payments systems could harm the efficacy of our sanctions."
Despite viewing crypto as a risk, the Treasury referred to "existing outreach and engagement capabilities" rather than criminalization as a solution, highlighting "new constituencies, particularly in the digital assets space."
"Treasury should invest in deepening its institutional knowledge and capabilities in the evolving digital assets and services space to support the full sanctions lifecycle of activities," the review reads.
Just three days ago, OFAC published guidelines for the crypto industry that, in retrospect, look like part of an outreach campaign. The latest reference to an investment into knowledge and capabilities, moreover, makes it sound like the Treasury will be looking to contract with more industry players.
The outcome of the charm offensive from the Treasury is hardly a sure thing. Several of the most conspicuous unifying moments among crypto advocates came in opposition to attempts by the Treasury to expand crypto reporting requirements.
Examples include Steven Mnuchin's push for counterparty checks on transfers to self-hosted wallets in December and expanded IRS definitions of "broker" in the stalled infrastructure bill. Consequently, industry players are largely wary of the Treasury.