Cryptocurrencies pose a threat to effectively enforcing sanctions, says US Treasury Department

• Cryptocurrencies threaten the effectiveness of sanctions imposed by the US, the Treasury Department said.
• Treasury said "malign actors" can use digital assets to hide cross-border transactions.

Cryptocurrencies hold the potential to undermine sanctions the US imposes to advance its security and economic interests, the Treasury Department said in a report.

The US has more than 9,400 sanctions in place, but the country faces newer challenges in part from cybercriminals, the department said in a review released Monday. The government must adapt and modernize its operations to stay on top of changes in global financing, it said.

"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," said Treasury, which met with members of Congress, the private sector, foreign governments, and others to prepare the 2021 review.

"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," it said.

Sanctions became "a tool of first resort" after the September 11, 2001, terrorist attacks against the US to address threats to national security, foreign policy, and the economy, Treasury said.

But now American adversaries and some allies have been reducing their use of the US dollar and their exposure to the US financial system. "We are mindful of the risk that, if left unchecked, these digital assets and payments systems could harm the efficacy of our sanctions."

In suggesting steps to modernize, Treasury said it needs to improve its communication and coordination with stakeholders affected by the use of financial sanctions.

It added that "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."