Treasury’s Wally Adeyemo: Legislation needed to cut off Iran, Hamas crypto pipeline

‘We fear that without congressional action to provide us with necessary tools, the use of virtual assets by these actors will only grow,’ the deputy Treasury secretary said

Tom Williams/CQ-Roll Call, Inc via Getty Images

UNITED STATES - APRIL 9: Deputy Treasury Secretary Wally Adeyemo is seen after testifying at the Senate Banking, Housing and Urban Affairs Committee hearing titled "An Update from the Treasury Department: Countering Illicit Finance, Terrorism and Sanctions Evasion," in Dirksen Building on Tuesday, April 9, 2024.

Deputy Treasury Secretary Wally Adeyemo repeatedly emphasized at a hearing on Tuesday that Congress needs to pass legislation to grant the administration new authorities to cut off cryptocurrency financing pipelines that are or could be used by Iran and its terrorist proxies to evade U.S. sanctions.

Adeyemo and the Treasury Department have in multiple instances in recent months called for these new authorities, including the ability to sanction cryptocurrency companies for processing transactions for sanctioned individuals and terror groups, an explicit expansion of existing powers and regulations to cover the cryptocurrency industry and the power to exercise jurisdiction over cryptocurrency products pegged to the U.S. dollar even if the transactions don’t directly touch the U.S. They have pointed not only to Iran, but also Russia and North Korea as areas of concern.

“As we take steps to cut terrorist groups and other malign actors off from the traditional financial system, we are increasingly concerned about the ways these actors are using cryptocurrencies to circumvent our sanctions,” Adeyemo said at a Senate Banking Committee hearing. “We fear that without congressional action to provide us with necessary tools, the use of virtual assets by these actors will only grow.”

He said that Iran has transferred funds via cryptocurrency to Hamas and Palestinian Islamic Jihad, and that Treasury has taken steps to block cryptocurrency networks providing small-dollar donations to Hamas.

“Our problem is that actors are increasingly finding ways to hide their identities and move resources using virtual currency,” he continued, warning that these new technologies allow faster and easier movement of money than other previous systems of sanctions evasion.

Pressed throughout the hearing on the significant rise in Iranian oil revenues in recent years, particularly from sales to China — which critics have blamed on lax sanctions enforcement by the U.S. — Adeyemo again called for greater authorities to tackle cryptocurrency.

“We are willing to and have sanctioned middlemen that are in Hong Kong and other places and will continue to do that,” he said. “But the challenge set that we have now is that, while you’ve given us authorities to go after the traditional financial sector, we could use additional authorities to allow us to go after cryptocurrencies.”

He said the Biden administration has placed new sanctions against Iran and would continue to work in an interagency fashion to counter sanctions evasion, but said that Iran will continue efforts to duck sanctions.

Richard Goldberg, a senior adviser at the Foundation for Defense of Democracies, questioned the emphasis on tackling cryptocurrency to combat Iranian oil sanctions evasion.

“I’m not aware of crypto regulations being needed to stop Iranian oil sales to China,” he told Jewish Insider. “That merely requires political will to follow the law and enforce U.S. sanctions.”

Matthew Levitt, the Fromer-Wexler Senior Fellow and director of the Jeanette and Eli Reinhard Program on Counterterrorism and Intelligence at The Washington Institute for Near East Policy, said it makes sense to address the emerging avenue for sanctions evasion.

“Adeyemo did not say that crypto has become the main vehicle for illicit finance for either set of groups” — referring to transactions between China and Iran and between Iran and its proxies — “but it is on the uptick,” Levitt told JI. “We should be getting ahead of the problem, before it becomes something bigger, so he went to the Hill to make the case for better legislation.”

Adeyemo also said that the U.S. had met early in the Gaza conflict with leaders from financial institutions and humanitarian groups to ensure that humanitarian aid can continue to reach the enclave despite U.S. sanctions, which include exemptions for humanitarian aid purposes. He said officials also worked with European allies to create humanitarian carve-outs to their own sanctions.

The Treasury official fended off questions about the administration’s Iran sanctions waivers connected to Tehran’s energy trade with Iraq. He said that the funds from those transactions remain in Iraq, that they must be used for humanitarian purposes, that the funds never directly enter Iran and that similar sanctions waivers have been in place since the Trump administration.

The most recent waivers granted by the Biden administration over the past year have been broader than those issued under the previous administration, allowing the funds to move out of Iraq into Oman and to be converted into euros.

He also rejected arguments from Republicans that any humanitarian support for Iran ultimately allows the Iranian regime to spend more on its terrorist proxies, insisting that Iran would not otherwise be spending anything on humanitarian support, directing any funds available in-country toward the Islamic Revolutionary Guard Corps and its terrorist proxies.

Subscribe now to
the Daily Kickoff

The politics and business news you need to stay up to date, delivered each morning in a must-read newsletter.