GOP says Biden administration is using crypto as a 'scapegoat' for foreign-policy failures

By Chris Matthews

Ransomware crypto payments eclipsed $1 billion in 2023

The digital-asset industry and its allies in Congress on Tuesday criticized the Biden administration for blaming cryptocurrency for its failures to prevent the flow of funds to foreign adversaries supporting terrorism, drug trafficking and other illegal activities.

Faryar Shirzad, chief policy officer at the cryptocurrency exchange Coinbase (COIN), told MarketWatch in an interview that "the amount of illicit activity using crypto is actually quite low compared to traditional finance," but that there are things the "U.S. government can do more to go after offshore bad actors."

The comments come as Deputy Treasury Secretary Wally Adeyemo testified Tuesday before the Senate Banking Committee to request that Congress pass new laws that would allow the department to more easily oversee crypto transactions.

"We are increasingly concerned about the ways malign actors are using cryptocurrencies to circumvent sanctions," Adeyemo said during the hearing, noting that U.S. authorities have seen an increase in the use of crypto by Iran, Russia, North Korea and the Hamas militant group in recent months.

Nonstate actors are also leveraging crypto for criminal activities, with ransomware crypto payments reaching more than $1 billion in 2023 and the number of incidents increasing to 1,500 from 1,200 the year before, Adeyemo said.

Treasury's second-ranking official asked Congress to provide the department with new powers to regulate the digital-asset industry, including secondary sanctions powers to target foreign digital-asset providers and explicit authority to regulate domestic exchanges.

Sen. Tim Scott of South Carolina, the ranking Republican on the committee, said that the Biden administration was using digital assets as a "scapegoat" to distract from its failure to stop money flowing to Hamas, Iran and Vladimir Putin's Russia.

"With all that's going on in the world, the only legislative requests you've sent to this committee are new authorities related to cryptocurrency," Scott said.

One area where the Biden administration and the digital-asset industry agree is on the need for new laws to regulate the issuance of stablecoins, which are a type of digital asset that pegs its value to the dollar or another major currency.

A recent report in the Wall Street Journal described the use of the world's most popular stablecoin, Tether (USDTUSD), "as one of the world's default black-market payment methods," which is "indispensable" to Putin's war effort in Ukraine and able to process nearly the same volume of financial transactions in a year as Visa (V).

Treasury has asked Congress to give it the power to block transactions using Tether, and the Biden administration previously came out in support of a proposed law regulating stablecoins that would require them to be issued by a banking institution.

A Tether spokesperson told MarketWatch that the stablecoin is working with lawmakers to craft legislation to stop the financing of illicit activity. "We look forward to continuing our collaboration with the U.S. government and law enforcement on this matter to foster a safer, more secure digital-asset ecosystem," they said in a statement.

A separate, bipartisan bill on stablecoins passed the House Financial Services Committee last summer, but the legislation is opposed by most Democrats and there remains serious disagreement over whether the Federal Reserve or state banking regulators should have primary oversight over these instruments.

House Financial Services Chair Patrick McHenry, a North Carolina Republican, said last month that he is optimistic a compromise bill can make it through the House if an appropriate legislative vehicle can be found by the end of the year.

Shirzad and Dante Disparte, head of global policy at Circle - the crypto platform that issues the stablecoin USD Coin (USDCUSD) - sent a letter Tuesday to both Senate Majority Leader Chuck Schumer and Minority Leader Mitch McConnell, urging the leaders to take up legislation that would comprehensively regulate stablecoins and the market for digital assets more broadly.

"If you're going to have people creating dollar instruments, they should be subject to U.S. rules," Shirzad told MarketWatch. "Having more dollar-denominated U.S.-issued stablecoins ultimately takes the oxygen out of the illicit players."

This article has been updated to include a statement from a Tether spokesperson.

-Chris Matthews

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

04-09-24 1950ET

Copyright (c) 2024 Dow Jones & Company, Inc.