February 8, 2018
Digital Currencies: Sanctions Evasion Risks
Growth in the Cryptocurrency Market
As the market for digital currencies evolves, one area on
which Congress has focused is the potential use of digital
currencies for sanctions evasion. Digital currencies face an
uneven international regulatory environment, and countries
are considering different approaches to regulating and/or
issuing digital currencies. Some governments are exploring
the possibility of issuing digital currency as a means of
sanctions evasion (as in the case of Venezuela and Russia),
while others are exploiting weaknesses in existing virtual
currency markets to evade restrictions on access to the
international banking system (as in the case of North
Bitcoin, launched in 2009, was the first and continues to be the
most widely used “cryptocurrency.” Today, there are nearly
1,500 cryptocurrencies in circulation with a total market
capitalization of $340 billion, although valuations have fluctuated
widely (Figure 1). The five largest cryptocurrencies account for
70% of total virtual currency market capitalization, and include
Bitcoin ($121 billion); Ethereum ($70 billion); Ripple ($28
billion); Bitcoin Cash ($15 billion); and Cardano ($9 billion).
Figure 1. Market Capitalization of Major
Cryptocurrencies ($ in billions)
Digital Currency Market
Money is the set of assets used to buy goods and services
from others. It functions in the economy as a: (1) medium
of exchange; (2) unit of account; and (3) store of value.
Although money may be made of materials that have
intrinsic value, such as gold, most countries today use fiat
currency, which has no intrinsic value, but serves as
money by government decree.
Virtual currencies are digital representations of value that
can be digitally traded and function like money. Unlike fiat
currencies, virtual currencies do not have legal tender
status. Virtual currencies may be convertible or nonconvertible. Convertible virtual currencies can be
exchanged for fiat currencies. Non-convertible virtual
currencies are restricted to online domains (such as
multiplayer online gaming).
Some virtual currencies are run by a centralized
administrator that issues currency and maintains a central
payment ledger. Other virtual currencies are decentralized,
for which transactions are recorded on a blockchain ledger
and rely on encryption techniques to control the creation of
monetary units and to verify the transfer of funds.
Convertible, decentralized currencies are also called
Many central banks worldwide, including the U.S. Federal
Reserve and the People’s Bank of China, are evaluating the
creation of digital representations of fiat currencies, or
digital fiat currencies. In September 2017, the Bank for
International Settlements, an organization of 60 central
banks including the U.S. Federal Reserve, recommended
that central banks pay attention to the development of
virtual currencies and consider the issuance of their own
Benefits and Risks of Virtual Currencies
Virtual currencies have the potential to revolutionize the
financial and banking industries. They could increase
payment efficiency, reduce transaction costs of payments
and fund transfers, increase participation in the financial
system, and facilitate transactions. Digital currencies,
however, also present risks. Virtual currency platforms
remain largely unregulated, and could be vulnerable to
fraud and theft. There are also risks related to security,
payment beneficiary identification, and currency volatility.
Virtual currencies may also pose a variety of illicit finance
concerns. They provide total or partial anonymity to users
and transactions and can be used as an alternative to the
formal banking sector, which is more highly regulated. The
uneven international regulatory environment surrounding
the rapidly evolving virtual currency market is also
attractive to illicit actors, who may seek to exploit virtual
currencies operating in unregulated jurisdictions to launder
ill-gotten funds, finance terrorism, or evade sanctions.
Sanctions Evasion Risks
Recent events have highlighted the interest of some
governments subject to economic sanctions in exploiting
virtual and digital currencies to evade U.S. sanctions.
According to Treasury officials, however, sanctions evasion
risks posed by virtual currencies have been limited in
Digital Currencies: Sanctions Evasion Risks
practice. Individuals, entities, and transactions subject to
U.S. jurisdiction are required to comply with all U.S.
sanctions, regardless of the currency, including virtual
currencies. Treasury officials also assess that the current
domestic anti-money laundering (AML) regulatory
approach to virtual currencies is sufficient (see text box on
U.S. AML guidance).
Nevertheless, the characteristics of virtual currencies that
make them attractive to criminals may also make them
attractive to sanctions evaders. The risks could increase if
virtual currencies were more widely adopted, such that
daily financial life could be conducted for the most part in
an entirely virtual currency universe.
Selected Country Case Studies
Venezuela. In December 2017, Venezuelan President
Nicolás Maduro announced plans to launch a new digital
currency, the “petro” backed by oil reserves and other
commodities. Maduro stressed the petro would help
Venezuela overcome U.S. sanctions and provide a fresh
infusion of funds to the government. The Venezuelan
government refers to the petro as a cryptocurrency, but it
would operate very differently from other cryptocurrencies.
The petro would have a central administrator (the
government) and be backed by commodity assets. On
January 19, 2018, the U.S. Treasury’s Office of Foreign
Assets Control (OFAC) stated that any purchases of the
proposed petro currency would appear to be an extension of
credit to the Venezuelan government, and thus U.S.
investors who deal in petros could found to be in violation
of U.S. sanctions.
Russia. The Russian government is exploring ways to
create a new, state-run cryptocurrency, or “cryptorouble.”
According to Russian officials, a primary motivation is to
“settle accounts with our counterparties all over the world
with no regard for sanctions.” Reportedly, the
cryptocurrency would be a digital version of the rouble. As
with the Venezuelan petro, the proposed cryptorouble
appears to resemble a digital fiat currency: it would be
administered by the Russian government rather than a
decentralized network, although the Russian government
may provide some anonymity to users. There are a number
of questions about how a cryptorouble would operate. The
Russian central bank is reportedly pushing back against the
Iran. Despite the lifting of some sanctions against Iran in
2015, other U.S. sanctions remain in effect. Meanwhile,
European and other major global banks have been slow to
reenter the Iranian market since implementation of the 2015
Joint Comprehensive Plan of Action. In light of Iran’s
ongoing banking challenges and popular interest in
expanding its virtual currency market, the Central Bank of
Iran (CBI) has been reportedly studying the issue of virtual
currencies and intends to announce the results of their
studies sometime in 2018. CBI is designated by Treasury as
a jurisdiction of primary money laundering concern, and
remains subject to restrictions that prohibit CBI’s
transactions with U.S. accounts in foreign banks.
currency exchanges and investors—through the theft of
digital wallets, deployment of ransomware and phishing
campaigns, as well as mining operations—for financial gain
and to ease the economic burden of ongoing sanctions
pressure. This observed trend includes the WannaCry
attack, during which attackers locked users worldwide out
of their computers until they paid a ransom in Bitcoins;
several Bitcoin wallets associated with WannaCry have
reportedly been emptied. Several suspected North Korean
cyberattacks also targeted South Korean exchanges.
U.S. Anti-Money Laundering (AML) Guidance
Treasury’s Financial Crimes Enforcement Network (FinCEN)
monitors the exchange of virtual currency for legal tender (and
vice versa) for compliance with AML requirements.
Since the mid-2000s, U.S. authorities have targeted virtual
currency businesses and exchanges, as well as websites that
brokered transactions involving virtual currency through a
variety of enforcement actions.
In 2011, FinCEN amended its rule dealing with Money
Services Businesses (MSBs) to regulate those engaged in
accepting convertible virtual currency from one person and
transmitting it to another person or location.
In 2013, FinCEN issued guidance to clarify that
administrators and exchangers of virtual currency are
considered MSB money transmitters and must register as
such with FinCEN as well as implement relevant AML
recordkeeping, reporting, and compliance measures.
Since 2014 (FY2015), FinCEN has worked with the Internal
Revenue Service (IRS), to identify licensed and unlicensed
MSBs operating in the virtual currency marketplace subject
to U.S. jurisdiction for AML compliance examination.
In 2016, Treasury conducted risk assessments on money
laundering and terrorist financing, which described criminal
exploitation of virtual currencies as a vulnerability deserving
of further scrutiny.
As of January 2018, approximately 100 virtual currency
providers and exchangers have registered in the United
States as money transmitters; IRS and FinCEN have
examined approximately 40 registered and unregistered
MSBs involved in the virtual currency market.
Digital currencies face an uneven international regulatory
environment, and countries are considering different
approaches to regulating and/or adopting digital currencies.
A growing area of concern is potential exploitation of
digital currencies to evade sanctions. Policymakers may
continue to monitor their impact on the efficacy of
For more, see CRS In Focus IF10824, Introduction to
Financial Services: “Cryptocurrencies”, by David W.
Rebecca M. Nelson, Specialist in International Trade and
Liana W. Rosen, Specialist in International Crime and
North Korea. Beginning in 2017, observers indicate that
purported North Korean cyber operations targeted virtual
Digital Currencies: Sanctions Evasion Risks
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF10825 · VERSION 3 · NEW