OFAC Needs More Funding, Resources to Address Sanctions Evasion, Experts Say

More countries are using cryptocurrencies to evade U.S. sanctions, a troubling trend that could damage U.S. sanctions regimes if not managed correctly, sanctions experts told Congress this week. The experts said lawmakers should provide more funding to the Treasury Department's Office of Foreign Assets Control to address the issue and should push for more public-private partnerships to help OFAC target cryptocurrency users.

“We have seen [countries and groups] like Iran, Venezuela, North Korea, Hamas, al-Qaida and the Islamic State increasingly utilize crypto assets to evade sanctions,” Eric Lorber, a sanctions expert with the Foundation for Defense of Democracies, told a House Financial Services subcommittee June 16. Although OFAC in recent years has “armed the private sector” with information on sanctions evasion tactics, including for the maritime sector (see 1909040055) and for ransomware payments (see 2010010018), the agency can do more, Lorber said.

He suggested an information exchange session wherein OFAC meets with a “series of financial institutions” to address an issue, such as sanctions evasion tactics. “They could pick a number of banks or insurance companies that they believe may be seeing this activity or have exposure to this activity and provide them with unclassified and scrubbed information to get them to harden their systems,” said Lorber, a former Treasury official. “That’s the type of public-private information sharing that I think would be particularly effective.”

Jesse Spiro, the head of policy for blockchain analysis company Chainalysis, said the U.S. should work closer with allies to share information on how cryptocurrency is being used to evade sanctions. “Cryptocurrency is global,” he told lawmakers, “and through collaboration we can expect more successful investigations and seizure of funds.”

He also said OFAC needs more funding from Congress to bolster its ability to address cryptocurrency and sanctions evasion. If OFAC has more resources, he said, it will be able to identify and designate more sanctions evaders, which will raise industry compliance. “When the private sector has access to that information,” Spiro said, “that is how they can potentially mitigate the illicit activity.”

A significant user of cryptocurrency is Iran, although it is unclear how willing the Biden administration will be to continue to strongly sanction the Iranian government, said Lorber, who was senior adviser to the undersecretary for terrorism and financial intelligence in the Trump administration. Lorber said U.S.-Iran negotiations over rejoining the Joint Comprehensive Plan of Action might interfere with sanctions decisions (see 2105270025). OFAC lifted three Iran-related designations this month, but the State Department said they were unrelated to the JCPOA (see 2106110020).

“We still have many tools at our disposal to stop Iranian sanctions evasion activity,” but “the bigger question is what is this administration’s appetite for using those tools in order to stop that activity,” Lorber said. “There is a much more open question as to whether or not the administration will aggressively go after Iranian activity outside of the nuclear docket right now.”