MM this morning has a couple of big exclusives from Treasury Deputy Secretary Wally Adeyemo and Sen. Elizabeth Warren on their work to beef up financial safeguards in cryptocurrency trading. Adeyemo is set to testify today before Warren and other members of the Senate Banking Committee on crypto’s role in financial crime and sanctions evasion. It’s an issue that’s become top of mind for policymakers in the wake of the Hamas attack on Israel and recent reporting that digital currency is helping Russia fund its war in Ukraine. Adeyemo is urging Senate Banking Chair Sherrod Brown and other key lawmakers to give the Treasury Department greater authority to police crypto transactions and entities that the administration sees as a growing threat in the world of money laundering. In an interview, Adeyemo previewed what he’ll tell the committee and gave an update on where things stand with potential legislation. “My goal is to talk with senators about the importance of giving us the tools we need to prevent cryptocurrency from becoming a place where terrorists and other groups that look to harm us go to escape the formal financial sector,” he said. New data — Treasury will release findings from Bank Secrecy Act filings that show ransomware-related payments rose from 1,200 in 2022 to 1,500 in 2023, with the value of the payments growing from $600 million to $1.16 billion. He said it’s “exclusively” made up of crypto. In 2021, ransomware-related BSA reports approached $1.2 billion. “It's not only a challenge to our national security, but also to our economy more broadly,” he said. What’s happening on the Hill — Adeyemo first outlined Treasury’s legislative term sheet on potential crypto authorities late last year. Treasury is asking Congress to create a secondary sanctions regime to target foreign digital asset providers, update Bank Secrecy Act definitions to further capture virtual assets and to give Treasury’s Office of Foreign Assets Control jurisdiction over dollar-denominated stablecoins. “The thing that I've been encouraged by is that I've talked to a bipartisan group of senators that represent the entire Senate ideological spectrum who are interested in taking action,” Adeyemo said. “We have a number of bills that are bipartisan that cover parts of the term sheet. I know that Sen. Brown has been working to look at ways to comprehensively cover a number of the issues that we raised in the term sheet.” Russia and sanctions evasion — Adeyemo said actions by Russia have “taught us a great deal about what we need to do.” “Be it Russia, North Korea, Hamas or cyber criminals, they’re attempting to increasingly use tools, be they virtual currencies or mixers, that allow them to escape U.S. jurisdiction,” he said. “A piece of this is getting Congress to give us the authorities to go after those entities. But what we also know is that once we get congressional authority, a big part of this is the U.S. going out leading the rest of the world to build a global regulatory ecosystem.” Adeyemo said his fear is that the more Iran, Russia, Hamas and other groups are cut off from the traditional financial sector, “that’s going to move them into a crypto landscape where we have fewer tools and they have the better ability to move their money quickly.” Tether — Your MM host asked Adeyemo about calls in Congress to crack down on Tether, the operator of the mega-stablecoin that’s long drawn scrutiny for its role in illicit finance. (Adeyemo singles out Russia’s use of tether to evade sanctions in his written testimony.) “I won’t speak to any specific entity," Adeyemo told MM. "But what I can tell you is that entities where they are claiming to not have U.S. jurisdiction, they’re not registered here, where they are attempting to evade us, are harder for us to get at. Fundamentally, we’re always looking for U.S. touchpoints. We’re always looking very closely at the activities that these firms are undertaking, and trying to work with international partners to try and do joint actions. But what I’m signaling to Congress is that in order for us to be able to get at this problem set, we need new authorities.” On a stablecoin deal — House Financial Services Chair Patrick McHenry and ranking member Maxine Waters have signaled that they’re close on separate legislation that would establish a new federal regulatory regime for stablecoins, with McHenry indicating it’s just a matter of finding a legislative vehicle. It’s a priority for Treasury to enact legislation that addresses potential financial stability risks involving the tokens, and Adeyemo said the department has had “productive conversations” with McHenry and Waters about the bill they’re working on. “I haven’t seen the specifics, but what I can say is, if you are going to do a comprehensive stablecoin bill, it’s going to be important that legislation includes appropriate language on anti-money laundering and countering the financing of terrorism,” he said. “Which in some ways overlaps with what we have in the term sheet but in other ways it’s different." Enter Elizabeth Warren. The Massachusetts Democrat, one of the crypto industry’s most vocal critics, has a new warning for McHenry and Waters as they proceed with their stablecoin talks. It’s a sign that a deal faces potential backlash from crypto skeptics like Warren, who fear that new financial risks may be unleashed if Congress enshrines the digital asset industry in federal banking law. Warren has been trying to rally lawmakers to ratchet up anti-money laundering rules for the industry. MM has a first look at a letter that Warren sent to McHenry and Waters outlining her concerns. “As your committee has recognized, stablecoins and stablecoin-related activities may undermine consumer protection and the safety and soundness of the banking system,” Warren said. “But efforts to create new regulatory frameworks around the $157 billion stablecoin market, including those that aim to fold stablecoins deeper into the banking sector, could amplify and entrench these risks rather than mitigate them." Warren cited illicit finance concerns linked to Tether and the turmoil that U.S.-based stablecoin giant Circle experienced when $3.3 billion of its reserves were tied up in the failing of Silicon Valley Bank. The lender's uninsured depositors ultimately received a federal backstop to fend off a broader contagion. Circle, a big supporter of McHenry’s stablecoin bill, said in a post by chief strategy officer Dante Disparte that the legislation “would create a floor for all issuers to comply with U.S. anti-money laundering, countering terrorist financing and sanctions obligations.” He cited a TRM Labs report that found 0.05 percent of Circle’s USDC stablecoin was used for illicit activity, compared to 1.63 percent of Tether’s USDT. Circle and the crypto exchange Coinbase on Monday sent a letter to Senate Majority Leader Chuck Schumer and Minority Leader Mitch McConnell Monday urging them to pass stablecoin legislation. Warren’s letter can be viewed as a warning shot for Brown and other Democrats if they embrace a House stablecoin agreement, underscoring the high political hurdles for enacting such legislation. “I urge you to remember the gravity of these risks as your committee consider proposals to regulate stablecoins and avoid introducing stablecoin legislation that holds the potential of unleashing another financial crisis,” Warren wrote. It’s Tuesday — Send tips to zwarmbrodt@politico.com.
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