Wally Adeyemo, the US Treasury Deputy Secretary, has released an official statement on how stablecoins are being used to avoid established security safeguards. The statement was issued before a hearing with the Senate Banking, Housing, and Urban Affairs Committee. It references various terrorist organizations, as well as Russia.
As for Russia, it has been said that the country is utilizing alternative payment mechanisms to navigate its way around sanctions imposed by the US. Meaning, it is still engaging in trade practices but with stablecoins without leaving any traces of it. That is something that works both ways – also helping parties to conceal their involvement despite being informed not to do so under the sanctions.
Russia is currently at war with Ukraine, and support of any kind to Russia, or trade engagement, is restricted under the US sanctions. Reportedly, Russia is leveraging this position to finance its war machines.
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Terrorist organizations like al-Qaeda and Palestinian Islamic Jihad (PIJ) have been identified to be misusing stablecoins. They are reportedly using digital currencies by spreading a network on social media, and laundering the proceeds via various online gift card exchanges. This way, they are said to be strengthening their violent agenda.
Traditional financial mechanisms are well-equipped to tackle the issue; however, cryptocurrencies and stablecoins lack the mechanism to stop such usage. They have many times come under scrutiny but have escaped by mentioning that the same mechanism was coming to the rescue of the needy in the form of humanitarian aid.
The statement further mentions options that were proposed in November last year, that is 2023. It emphasized the need for secondary sanctions to be offered, which would target digital currencies and mechanisms. The second proposal pitched an expansion so that authorities can cover the gap between the current system and entities that are involved in virtual asset service providers plus crypto exchanges. Finally, it addresses the risks that offshore exchange platforms bring with them to the domestic soil.
The statement comes at a time when the crypto community in the US is expecting to have an Ether ETF by the end of this year. While it makes sense to strengthen the regulations, the community is more afraid of what it will do to cryptos. That is if it will pull down the utility or value in the near future.
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The only way for authorities to combat its misuse and safeguard locals is to keep illegal usage under wraps. The next meeting with the Committee will probably include all three of the suggestions presented in November. There is certainly a gap that the authorities are looking to bridge. It only remains to be seen how the Senate Banking, Housing, & Urban Affairs Committee takes these statements and what comes out of the hearing.
