[Senate Hearing 117-677]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 117-677

               UNDERSTANDING THE ROLE OF DIGITAL ASSETS 
                           IN ILLICIT FINANCE

=======================================================================

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                                   ON

  EXAMINING DIGITAL ASSETS TO LEARN HOW THEY WORK AND THE RISKS THEY 
             CREATE FOR CONSUMERS AND THE FINANCIAL SYSTEM

                               __________

                             MARCH 17, 2022

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs
                                
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                                


                Available at: https: //www.govinfo.gov /

                              __________

                                
                    U.S. GOVERNMENT PUBLISHING OFFICE                    
52-387 PDF                  WASHINGTON : 2023                    
          
-----------------------------------------------------------------------------------   

            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                     SHERROD BROWN, Ohio, Chairman

JACK REED, Rhode Island              PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
JON TESTER, Montana                  MIKE CRAPO, Idaho
MARK R. WARNER, Virginia             TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts      MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada       JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota                BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona              CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia                  JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia             KEVIN CRAMER, North Dakota
                                     STEVE DAINES, Montana

                     Laura Swanson, Staff Director

                 Brad Grantz, Republican Staff Director

                       Elisha Tuku, Chief Counsel

                 Dan Sullivan, Republican Chief Counsel

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                        Pat Lally, Hearing Clerk

                                  (ii)


                            C O N T E N T S

                              ----------                              

                        THURSDAY, MARCH 17, 2022

                                                                   Page
Opening statement of Chairman Brown..............................     1
        Prepared statement.......................................    38

Opening statements, comments, or prepared statements of:
    Senator Toomey...............................................     3
        Prepared statement.......................................    39

                               WITNESSES

Jonathan Levin, Cofounder and Chief Strategy Officer, 
  Chainalysis, Inc...............................................     5
    Prepared statement...........................................    41
    Responses to written questions of:
        Chairman Brown...........................................    92
        Senator Reed.............................................    94
Michael Mosier, Former Acting Director, Deputy Director/Digital 
  Innovation Officer, Financial Crimes Enforcement Network 
  (FinCEN).......................................................     7
    Prepared statement...........................................    83
    Responses to written questions of:
        Chairman Brown...........................................    95
Michael Chobanian, Founder of KUNA Exchange, President of 
  Blockchain Association of Ukraine..............................     8
    Prepared statement...........................................    87
    Responses to written questions of:
        Senator Reed.............................................    97
Shane Stansbury, Robinson Everett Distinguished Fellow in the 
  Center for Law, Ethics, and National Security, and Senior 
  Lecturing Fellow, Duke University School of Law................    10
    Prepared statement...........................................    88
    Responses to written questions of:
        Chairman Brown...........................................    97

              Additional Material Supplied for the Record

Letter submitted by NAFCU........................................   102
Statement submitted by AEI Housing Center........................   105

                                 (iii)

 
      UNDERSTANDING THE ROLE OF DIGITAL ASSETS IN ILLICIT FINANCE

                              ----------                              


                        THURSDAY, MARCH 17, 2022

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10 a.m., via Webex and in room 538, 
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of 
the Committee, presiding.

          OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

    Chairman Brown. The Senate Committee on Banking, Housing, 
and Urban Affairs will come to order. We have two witnesses in 
person, two remote. Thanks to all of you. This is in hybrid 
format, obviously.
    In 2019, a doctor's office in the Mahoning Valley in Ohio, 
the Youngstown area, experienced a disturbing attack. Hackers 
locked the office computers, making them unusable. They even 
faxed over a ransom note, promising to unlock the computers if 
the practice turned over $75,000, in Bitcoin.
    Not long ago, a Syrian group tied to al Qaeda put out a 
call for donations to help buy weapons. Their social media post 
said that supporters should ``donate anonymously with 
cryptocurrency.''
    ``Donate anonymously with cryptocurrency.''
    A week ago today, the Justice Department announced an 
indictment of two individuals who allegedly turned the profits 
of scams into cryptocurrency. Then they would send the crypto 
overseas, where it could be turned back into cash.
    This Committee has been examining digital assets to learn 
how they work and the risks they create for consumers and the 
financial system. We have also considered how digital assets 
can put workers' hard-earned money at risk.
    We are here today because crypto also can be used to make 
it easier to commit crimes, facilitating illicit finance, 
terrorism, and other forms of criminal activity, and 
threatening our national security. Bad actors around the world, 
from hackers, scammers, and drug traffickers to terrorist 
groups and pariah regimes, have sought digital assets to 
facilitate their crimes and intimidation.
    In October 2020, under the last Administration, the Justice 
Department concluded, quote, ``cryptocurrency technology plays 
a role in many of the most significant criminal and national 
security threats that the United States faces.''
    To be sure, criminals have tried to cover their tracks for 
years with sham accounting and banks that looked the other way. 
But there is a simple reason that crypto appeals to crime rings 
and scam artists.
    The dollar has safeguards to protect against crime and 
illicit activity. Companies that deal with real money are 
required to know their customers and report suspicious 
transactions. They need to keep records.
    And even when crypto companies are covered by the law, too 
many do not play by the same rules, especially offshore crypto 
operators that are not subject to U.S. law. Shady crypto 
companies that fail to adequately monitor activity on their 
platforms essentially give criminals a green light.
    Digital assets make it easier to move money under 
pseudonyms. They make it easier for money launderers to use 
webs of transactions across the globe to cover their tracks, 
and that makes it harder for law enforcement to trace illicit 
funds.
    FinCEN, the Financial Crimes Enforcement Network, the 
Treasury bureau charged with safeguarding our financial system 
from abuse, warned last week that Russian actors could even use 
crypto to get around sanctions.
    So sophisticated bad actors can use digital assets in ways 
that, if they were using dollars, would likely raise red flags 
and get them stopped in their tracks.
    Last year, FinCEN fined a crypto exchange $100 million. For 
6 years, the only identification the company bothered to get 
from customers was an email address. That no-questions-asked 
approach enabled more than $200 million in suspicious 
transactions.
    But the problem is not only shoddy compliance. It is more 
fundamental. We hear all the time about how ``innovative'' 
cryptocurrency is. But criminals innovate, too. Crypto allows 
money launderers and terrorists to do things they never could 
have done with dollars. There is a whole new vocabulary to 
explain cryptocurrency illicit activity.
    Take what is known as ``chain hopping.'' That is when 
someone launders money by changing funds from one 
cryptocurrency ecosystem to another, to make it harder to 
track. Or look at so-called ``rug pulls.'' That is when you set 
up a sham digital asset project online, raise as much money as 
you can, scamming investors all the while, and then run off 
with the cash.
    Then there is Hydra, the world's largest ``darknet.'' It is 
an online black market for drugs, for stolen credit card 
numbers, and for cyberattack services, all enabled by crypto. 
Our laws and law enforcement agencies need to keep pace with 
these bad actors that will exploit every opportunity and stay, 
as the old clich? says, one step ahead of the law. And so far, 
with lax rules and little oversight, we have given them plenty 
of those opportunities.
    Crypto lets money launderers, hackers, and rogue regimes 
invent new ways to hide and move money in the dark. It lets 
hackers and scammers create new ways to steal or defraud. And 
if we allow them to get out ahead of us, our safety and 
security are at risk.
    Law enforcement is doing what it can. They use techniques 
to stop cybercrime that did not exist three decades ago. 
Financial regulators leverage new data and resources to expose 
fraud and manipulation in our markets. Crypto technology also 
embeds information that allows law enforcement and national 
security officials to track and trace where it has been, though 
not necessarily who owns it. That is where the tough new money 
laundering and beneficial ownership law that we all passed 
bipartisanly last year will help.
    But as these problems continue to grow, we cannot sit on 
the sidelines. We need to take a clear-eyed look at how these 
assets can endanger consumers and our security.
    Last month, the FBI announced the creation of a new unit 
dedicated to tracking down illicit crypto. The Justice 
Department is dedicating more resources and staff to cracking 
down on crime using digital assets.
    We need to take a whole-of-Government approach to the 
problem if we are going to keep up with crypto in illicit 
finance.
    President Biden understands that. His Executive order on 
crypto assets last week will drive progress on this issue. It 
was comprehensive. It was done right. It will jumpstart a 
coordinated strategy from law enforcement and regulators to 
fight bad actors who want to use crypto.
    Ultimately, we just cannot sit back and watch 
cybercriminals, rogue regimes, terrorists, and others create a 
shadow financial system that works essentially only for them. 
The financial system should work for American families and 
small businesses. Everything we do on this Committee has that 
goal in mind. It means that we cannot let abuses of digital 
assets endanger our financial and our national security.
    As crypto technology evolves, this Committee must continue 
to work together to craft a way forward on these issues. The 
stakes are high, and the American people are counting on us.
    Ranking Member Toomey.

         OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

    Senator Toomey. Thank you, Mr. Chairman.
    This hearing is about digital assets and illicit finance, 
and while this is an important topic and is appropriate to 
discuss and understand this topic, we also need to work to 
ensure regulatory clarity for digital assets.
    Digital assets, including cryptocurrencies and their 
underlying distributed ledger technology, have enormous, 
tremendous potential benefits. Some are already being realized. 
As the White House itself recently stated, the U.S. must 
maintain its leadership in this space, which is why lawmakers 
and regulators should do nothing to harm America's longstanding 
tradition of fostering technological innovation.
    Unfortunately, I am concerned that the current lack of 
regulatory clarity here at home is undermining that tradition 
and driving innovation abroad. We need Congress to work 
together to enact a regulatory framework specific to digital 
assets that provides this much-needed clarity.
    While today's topic is illicit finance, I think an 
important backdrop for this hearing is Russia's invasion of 
Ukraine. By starting the largest land war in Europe since World 
War II, Russia has unleashed the greatest threat to global 
security in recent memory.
    The sanctions imposed thus far by the Biden administration 
are harmful to the Russian economy, but not crippling. 
Sanctions have purposefully allowed Russia to continue 
exporting oil and gas, funding Putin's war machine with what 
could be as much as $5 to $7 billion each week, coming from the 
West. Cutting off this revenue stream and getting more lethal 
aid to Ukraine are the two things we could do to maximize the 
chances that Ukraine wins this war, and Putin comes to 
understand this war was a calamitous mistake.
    To cutoff Putin's oil and gas sales globally, the 
Administration and Congress should impose secondary sanctions 
on Russia's entire financial sector. This would force the world 
to choose between doing business with Russia or with the United 
States. I urge the Administration to impose these sanctions and 
give Ukraine a fighting chance to win this war.
    I am concerned that part of today's hearing will be spent 
disparaging cryptocurrencies and trying to draw some connection 
between them and Russian sanctions evasion. There is no 
sanctions regime that is completely watertight, so it is quite 
possible that an oligarch somewhere that may be using a variety 
of tools, including crypto, to try to hide some assets.
    But according to Administration officials across multiple 
agencies, there is simply no evidence of cryptocurrencies being 
used by Russia to evade sanctions in any significant way.
    Just this month, FBI Director Christopher Wray told the 
Senate Intelligence Committee that, quote, ``the Russians' 
ability to circumvent the sanctions with cryptocurrency is 
probably highly overestimated,'' end quote. Acting FinCEN 
Director Him Das said, and I quote, ``we have not seen 
widespread evasion of our sanctions using methods such as 
cryptocurrency,'' end quote. And the director of cybersecurity 
for the National Security Council said, and I quote, ``the 
scale that Russia would need to successfully circumvent all 
U.S. and partners' financial sanctions would almost certainly 
render cryptocurrency as an ineffective primary tool for the 
State,'' end quote.
    The facts are clear and the Administration has discovered 
this. Russia cannot meaningfully use cryptocurrencies to evade 
current sanctions.
    While there has been virtually no evidence of that evasion 
taking place, Ukraine has been actively using cryptocurrencies 
to do tremendous good. Cryptocurrency donations for Ukraine 
have reached approximately $100 million, which has helped 
Ukrainians defend their country against this terrible invasion. 
These funds have gone toward more than 5,500 bulletproof vests, 
they have bought 500 helmets, and over 410,000 meals, among 
other things. Ukraine's Deputy Minister of Digital 
Transformation has said that, and I quote, ``each and every 
helmet and vest bought via crypto donations is currently saving 
Ukrainian soldiers' lives,'' end quote.
    We are fortunate to have as a witness today someone deeply 
affected by the war in Ukraine and the use of cryptocurrency to 
help Ukraine and its citizens. Michael Chobanian is the Founder 
of KUNA Exchange, a local cryptocurrency exchange based in 
Ukraine. For the past several weeks, Mr. Chobanian has been 
instrumental in coordinating efforts so individuals all around 
the world can contribute cryptocurrencies in support of 
Ukraine's defense.
    Crypto's remarkable nature is that anyone across the globe 
can contribute to this type of effort, almost instantaneously, 
at very low cost. It is in this context that we should examine 
cryptocurrencies and their relation to illicit finance.
    Throughout history, criminals have always tried to utilize 
new technologies for nefarious gain. But that is not a reason 
to stifle new technological developments. Crypto can be used to 
empower individuals and promote personal autonomy, but it can 
also support the detection and prevention of illicit crime. 
According to Chainalysis, transactions involving illicit 
addresses account only for 0.15 percent. That is less than two-
tenths-of-1-percent of cryptocurrency transaction volume last 
year.
    And this should be no surprise. The traceable nature of 
most cryptocurrencies is a factor making them terribly risky to 
utilize for criminal purposes. Just look at the Colonial 
Pipeline hack, which was one of the most disruptive ransomware 
attacks on record. The Department of Justice recovered 85 
percent of the Bitcoins that the pipeline paid in ransom, 
dealing a very significant blow to the hackers.
    One of today's witnesses, Michael Mosier, can speak 
directly about the characteristics of cryptocurrencies that 
help detect criminal activity. Mr. Mosier is the former Acting 
Director for the Financial Crimes Enforcement Network, or 
FinCEN, at the U.S. Treasury Department. His Government 
experience makes him uniquely qualified to discuss the topics 
before us today.
    Today I hope the Committee takes a thoughtful and 
reasonable approach to this topic, acknowledging both the risks 
that cryptocurrencies present, but also their incredible 
potential. I thank the witnesses for their testimony and 
participation today, and I look forward to the discussion.
    Chairman Brown. Thank you, Senator Toomey.
    I will introduce the four witnesses. We will hear from 
Jonathan Levin, Cofounder and Chief Strategy Officer at 
Chainalysis, Inc; Michael Mosier, the General Counsel of 
Espresso Systems and Former Acting Director and Deputy Director 
and Digital Innovation Officer at FinCEN. They both are sitting 
at the table in front of us.
    And appearing remotely, as Senator Toomey said, is Michael 
Chobanian, Founder of KUNA Exchange, President of Blockchain 
Association of Ukraine. Welcome. And Shane Stansbury, a Fellow 
at the Duke University School of Law, Former Assistant U.S. 
Attorney.
    Mr. Levin, please proceed. Thank you.

   STATEMENT OF JONATHAN LEVIN, COFOUNDER AND CHIEF STRATEGY 
                   OFFICER, CHAINALYSIS, INC.

    Mr. Levin. Chairman Brown, Ranking Member Toomey, and 
distinguished Members of the Committee, thank you for having me 
here today to testify about this topic at an important time, as 
we have put significant sanctions on Russia to end the war in 
the Ukraine and we work together on a full Government digital 
asset policy, as according to President Biden's Executive 
order, put in place last week.
    My name is Jonathan Levin, and I cofounded Chainalysis 8 
years ago with Michael Gronager.
    At the turn of the 20th century, my family fled the pogroms 
of Eastern Europe to look for a better life in the West. They 
left with nothing. People in the Ukraine today are fleeing 
their homes and crossing borders, leaving loved ones and 
possessions behind.
    We, as a global community, have come together at an 
unprecedented pace to counter this movement. This has been due 
to the speed of information that is possible with the internet, 
and this ultimately has to be matched with the speed and 
inclusiveness of finance.
    The transparency that the internet has created about these 
atrocities has not been matched by the transparency realized in 
financial services. Bitcoin and Ethereum are technologies that 
pose the greatest opportunity to increase the degree of 
transparency and financial services, included the excluded, and 
create new ways for commerce to happen.
    Bitcoin has evolved over the last decade. It started off as 
just a promising technology, but today there is a community of 
more than 100 million people who depend on it. It has also 
spurred the creation of other digital communities. Commerce, 
such as music, art, and even electric vehicles depend on the 
underlying technology.
    Chainalysis is the blockchain data platform. We provide 
data, products, services, and research to Government agencies, 
financial institutions, and the digital asset industry, more 
broadly. Through the use of our software, law enforcement has 
managed to take down the largest darknet markets, prevent the 
use of cryptocurrency for terrorist financing, and has 
prevented scams and investigated ransomware campaigns, as 
previously mentioned.
    Tens of thousands of cases and investigations have taken 
place on our platform by both public sector and private sector 
in the fight to remove illicit activity from cryptocurrencies. 
Our compliance software enables AML compliance for the digital 
asset industry to ensure their compliance with obligations 
under the Bank Secrecy Act.
    The blockchain's transparency and the permanence of the 
records that are contained within this allow us to root out 
this illicit activity. Law enforcement leverages the permanence 
of these records and its openness to take proactive steps in 
being able to investigate crimes without the need to serve 
subpoenas or have reporting requirements.
    When it comes to the use of sanctions as a tool for 
national security, OFAC has used the fact that there is 
compliance among the exchange to foster a degree of sanctions 
across the Russian ecosystem. In September 2021, OFAC 
sanctioned SUEX and Chatex, effectively removing these enablers 
as exchanges from the digital asset ecosystem.
    We at Chainalysis have also, last week, released a free and 
open sanctions screening tool for everyone in the industry to 
be able to screen against addresses that are listed on the OFAC 
SDN list.
    Just with any new technology, criminals have found 
innovative ways to exploit digital assets. As mentioned 
previously, illicit transactions only represent 0.15 percent of 
total transaction volume, as outlined in the Chainalysis Crypto 
Crime Report. I have included a much deeper analysis in my 
testimony, and I am happy to answer questions on it.
    The sanctions imposed on Russia demonstrate the power of 
investing in financial technology and the dominance of the 
dollar that we managed to achieve over the course of the 20th 
century. We need to make sure that we continue to invest in 
financial technology and build the financial rails that will be 
used by the global in the 21st century. Embracing digital 
assets will help the U.S. build this future. These new rails 
can be built in a way that encourages transparency and that not 
only protects our national security and public safety but 
actually enhances it.
    At the end of my testimony I have written some 
recommendations about how regulators and Congress can act to 
reduce illicit activity in digital asset markets, and I am very 
happy to answer questions.
    Chairman Brown. Thank you, Mr. Levin.
    Mr. Mosier, please proceed. Welcome again to the Committee.

  STATEMENT OF MICHAEL MOSIER, FORMER ACTING DIRECTOR, DEPUTY 
     DIRECTOR/DIGITAL INNOVATION OFFICER, FINANCIAL CRIMES 
                  ENFORCEMENT NETWORK (FINCEN)

    Mr. Mosier. Thank you, Chairman Brown, Ranking Member 
Toomey, Members of the Committee.
    My grandfather was a justice of the peace in a small mining 
and steel town in Western Pennsylvania. Sadly, he died long 
before I was born. But I treasure one of his 1953 election 
campaign cards. It says, ``Endorsed by labor and avowed enemy 
of Communism''. Those statements represent a sense of 
collective empowerment as well as vigilance that power can be 
oppressive.
    The desire to protect personal sovereignty led me to public 
service. After pro bono cases to help victims of domestic 
violence I became a prosecutor at the Manhattan District 
Attorney and eventually Deputy Chief in the Department of 
Justice, investigating kleptocracy and the financing of human 
trafficking.
    Protecting self-determination, as enshrined in the 
Constitution, is a critical part of public service. To that, 
when we speak of illicit finance we must also not forget the 
defenders of democracy whose financing may be considered 
``illicit'' to autocrats and invading armies. The same 
cryptographic capabilities discussed here today enabled secure, 
auditable, humanitarian aid to 60,000 health care workers in 
Venezuela, under a repressive regime. No doubt the regime there 
considered it subversive ``illicit'' finance, but to the White 
House and Treasury who approved it, it was cryptographically 
secure humanitarian aid.
    As we debate risks of technology based on cryptography it 
is critical to remember that encryption has protected and 
reflected our democratic values for years. Likewise, in the 
past few weeks, tens of millions of dollars' worth of 
cryptocurrency were donated to Ukraine, faster and more aid 
than the U.N. provided. With the transparency of Government-
identified wallets on a public ledger, far more accountability 
than the U.N.'s Oil-for-Food scandal.
    A few observations about ransomware in particular. 
Ransomware dates back to 1989, two decades before the emergence 
of Bitcoin. Yes, Bitcoin has become a preferred payment method 
because of speed and perceived anonymity. However, public 
ledgers offer law enforcement significant visibility and 
investigative benefits over opaque international banking. We 
saw this with the recovery of $2.3 million from the Colonial 
Pipeline attackers.
    The increase in ransomware has more to do with other 
developments. First, the advent of ransomware-as-a-service, 
making kits widely available, regardless of coding skills, and 
drastically reducing barriers to entry. And the use of double 
extortion, greatly increasing payouts by also threatening to 
expose stolen data, not just lock the computer.
    We also know from SolarWinds that there are plenty of 
malign actors driven by nonfinancial incentives. Over-
attributing cybercrime to cryptocurrency misses critical causes 
and preventive measures that could be taken.
    Certainly there is work to be done yet for Web3 to be 
safely accessible, but the early internet had a lot of fraud 
and exploits as well. Instead of shutting down the internet, we 
worked persistently to find the balance while prioritizing 
risks and pathways to consensus and clarity.
    If you want to tangibly impact illicit finance here are 
three concrete actions you can take.
    First, pass the budget that was due last October. Fifteen 
months after landmark AML modernization legislation, FinCEN and 
OFAC are without the roughly $74 million increase in personnel 
and technology, while more and more are demanded of them. 
Resource them for their current job before burdening them--and 
industry--with more unfunded mandates.
    Second, resource and expansively clarify the AML 
whistleblower program to empower crowdsourced leads related to 
corruption and abuse. Explicitly include any violation of money 
laundering, not just the BSA.
    Last, press FATF representatives to focus on regulatory 
arbitrage through baseline consistency across jurisdictions 
before adventuring into new rules. We know that the gaps are 
concentrated at a small group of foreign centralized exchanges. 
Help diligent U.S. exchanges by leveling the playing field 
before expanding the rules to mere developers, in conflict with 
our Constitution.
    I will close at that. Constitutional principles set the 
foundation for our country and our standing in the world. As we 
see in unified solidarity with Ukraine, principles are a key 
rallying point in the global battlefield of ideals. Thank you 
for this opportunity to advance our ideals today.
    Chairman Brown. Thank you, Mr. Mosier.
    Mr. Chobanian is joining us remote. Mr. Chobanian, welcome.

   STATEMENT OF MICHAEL CHOBANIAN, FOUNDER OF KUNA EXCHANGE, 
         PRESIDENT OF BLOCKCHAIN ASSOCIATION OF UKRAINE

    Mr. Chobanian. Good day. Can you hear me? I guess so. Good 
day.
    So my name is Michael Chobanian. I am the founder of KUNA 
Exchange, and I am also the President of Blockchain Association 
of Ukraine. Currently we serve more than 450,000 users.
    I would like to tell my story. You have my statement to 
read, but I would like to do a bit of storytelling. So on 24th 
of February, I woke up at 5 a.m. because I heard really loud 
noises, and my windows were shaking, my house was shaking, and 
I immediately understood that the war had started. So I woke 
up, I went up on the internet, I googled, I saw that the formal 
proof that the war has started. My kid woke up, my wife woke 
up, and they asked me what was happening, and I said, ``Russia 
has started war on us.'' And my kid asked, ``How?'' because we 
have so many friends in Russia. How could this happen? And I 
could not give her an answer.
    So a few hours later we had to leave my home. This is 
pretty much all I have left--a few sweaters, sneakers, and 
jeans--and the same with the other probably three million 
people, we had to flee toward Western Ukraine.
    So a couple of hours later, when we got to Western Ukraine, 
I decided that we have to set up a fund in order to help my 
people, my army. I knew that the army was in terrible 
conditions in terms of supplies, considering that we were 
fighting the probably second-largest army in the world.
    So we set up a fund, and a few hours later I was approached 
by the Minister of Digital Transformation and we discussed that 
instead of setting up a few smaller funds it is better to set 
up one big Government fund in order to, first of all, give 
transparency, in order to speed up the process of buying all 
the vital goods for my people, for my army. And basically we 
set up a fund, and now it is being run by both Ministry of 
Digital Transformation and by the Ministry of Defense.
    Right now we already collected more than $50 million in 
equivalent. We are reaching for about $100 million. Mr. 
Chairman stated what exactly we bought with it. This is just a 
tiny fraction of what we bought. We also had opportunity to 
supply finance to the cities like Mariupol, to Kharkiv, which 
are now enclosed and captured by Russians. The internet still 
works there so we can supply crypto there, and, with this 
crypto, people can buy food and whatever is required there.
    Our fund, well, because it is run on my exchange, it is 
fully compliant with the current laws and regulations in 
Ukraine. That is why we are working with the Government. 
Yesterday the President has signed the bill and now crypto is 
fully legal in Ukraine.
    In terms of sanctions, because, Mr. Chairman and Vice 
Chairman, you also said about the sanctions, so the first thing 
that we did as a crypto community in Ukraine, we shut down all 
the robo-operations, because that was a big hole in the 
sanctions list. And sanctions really help because that is how 
we would fight with economic means.
    Unfortunately, not all crypto companies followed our lead. 
Namely, Binance still works with the ruble, and it is a big 
hole in the sanctions so we are likely to investigate more on 
this.
    Also there was the note, Mr. Chairman, that Russians could 
use crypto to avoid sanctions. This is not exactly true. I am 
the person who is behind all the numbers. I know how it 
happens. So it is impossible, physically impossible to transfer 
large amounts of money from fiat into crypto. And again, even 
if they do, which is impossible, as I said, there is nothing 
they can do with it. Their yachts are being arrested. Their 
house is being arrested. They cannot travel to the civilized 
world. So for them it just done numbers, which are pretty 
useless.
    But I have to stress this out, and I have to stress this 
out very clearly, that there are a lot of Russians in Russia 
and outside of Russia who rely on crypto. These people are 
basically the opposition to the Putin regime, and we have to 
make sure that when you draft the laws that we do not actually 
kill this opposition within Russia that could actually help us 
bring down the regime.
    And the final I would like to read from much of my 
statement. By concluding, I would like to thank the U.S. Senate 
and U.S. people for the opportunity to stand here and speak on 
these vital issues. Our Nation is eternally grateful for all 
the help given by our international friends. Namely, yesterday 
we received the news that a lot of weapons will be given by 
U.S. country and by the U.K. and other European partners. I 
truly believe that the unprecedented global unity and support 
for Ukraine during this unmerited, unwanted, and unnecessary 
bloodshed can put an end to Putin's reign of terror and lead us 
to an even brighter future.
    Thank you, and Slava Ukraine.
    Chairman Brown. Thank you, Mr. Chobanian, and best wishes 
to you and your family. Mr. Stansbury, remote, I believe, from 
North Carolina.

 STATEMENT OF SHANE STANSBURY, ROBINSON EVERETT DISTINGUISHED 
 FELLOW IN THE CENTER FOR LAW, ETHICS, AND NATIONAL SECURITY, 
   AND SENIOR LECTURING FELLOW, DUKE UNIVERSITY SCHOOL OF LAW

    Mr. Stansbury. Chairman Brown, Ranking Member Toomey, 
distinguished Members of the Committee, thank you for the 
opportunity to testify today.
    I am a Senior Fellow in the Center on Law, Ethics, and 
National Security at Duke Law School, where I teach primarily 
in the areas of cybercrime and national security. I spent more 
than 8 years as a Federal prosecutor in the United States 
Attorney's Office for the Southern District of New York.
    Today I have been asked to talk about the role of 
cryptocurrencies in illicit activity and also the challenges 
facing law enforcement, so I will begin with some context.
    Criminals have always sought to take advantage of new forms 
of technology to facilitate illegal activity. Over the last two 
decades, the pace at which they have done has increased 
dramatically as the internet, social media, smartphones, and 
other innovations have changed the way we communicate.
    As a prosecutor, I saw digital communication like social 
media and encrypted messaging apps revolutionize the way that 
terrorist organizations recruit members and carry out 
operations. And, of course, drug traffickers and criminals of 
all types also adopted these technologies to further their 
criminal conduct.
    So in similar ways, cryptocurrency is changing the way that 
criminal finance illegal activities. In some ways we have been 
here before, but in other ways cryptocurrencies present new and 
distinct challenges. Because they are decentralized, easy to 
use, and hold the promise of at least some level of anonymity, 
cryptocurrencies can act as magnets for illicit activity.
    Cryptocurrency is now a multibillion-dollar business for 
criminals. It is used in connection with virtually every type 
of crime--child exploitation, human trafficking, extortion, 
fraud, you name it.
    Perhaps nowhere is cryptocurrency's role more vivid than in 
ransomware attacks. As many Americans know all too well, 
ransomware is no longer just a problem for U.S. businesses. It 
is a serious threat to our public safety and our national 
security. Look no further than the Colonial Pipeline attack 
last year, which caused fuel shortages throughout the Southeast 
United States. But that was only one incident among many. 
Hospitals, school districts, city governments, all of them are 
being victimized by this modern-day hostage scheme.
    Cryptocurrency is the defining feature of modern 
ransomware, and the attraction for ransomware criminals is the 
same for other criminals--obscurity. Cryptocurrency ransom 
payments can often pass through multiple layers involving 
different entities, including entities outside regulated 
markets. Criminals employ a variety of methods along the way to 
hide their tracks, and I explain some of those methods in my 
written testimony.
    Some of these same methods can be used by criminals who use 
cryptocurrency to launder proceeds or hide illicit assets 
without traditional intermediaries. Even the cryptocurrency 
market itself is providing new opportunities for crime. Wallets 
and exchanges have become targets for theft and fraud. 
Criminals both steal money directly and also engage in scams to 
defraud innocent investors in cryptocurrency.
    In short, cryptocurrency-related crime is here and it is 
growing, and we should be clear that the threat is not just 
from ordinary criminals. Rogue Nation States like North Korea 
have increasingly turned to cryptocurrency theft and other 
crimes to help finance their regimes.
    I would now like to just say a few words about the 
challenges for prosecutors and law enforcement. Law enforcement 
is getting much better at tracing digital assets used to commit 
and cover up criminal activity. With the help of forensic 
analysis and know-your-customer information from regulated 
entities, law enforcement can sometimes shine a light on an 
otherwise opaque world.
    Last year, DOJ recovered a substantial portion of the $4.4 
million in ransomware payments made in connection with the 
Colonial Pipeline attack, and just last month DOJ recovered a 
record $3.6 billion in cryptocurrency allegedly related to a 
2016 hack. These are promising and welcome developments.
    We should not be too quick to conclude that tracking down 
the criminals using cryptocurrency is always easy or even 
always possible. Even with the latest analytics, a single 
investigation can be resource intensive and take years. The 
hardest part of a cyber-related prosecution can often be 
demonstrating what investigators sometimes refer to as ``hands 
on the keyboard.'' Prosecutors have to demonstrate, beyond a 
reasonable doubt, that an identifiable person was behind a 
particular act. Digital clues from cryptocurrency transfers can 
be invaluable, but they do not provide all the answers about 
who is behind the criminal activity.
    When my colleagues and I investigated international money 
laundering cases we often connected dots because of information 
made available by institutions that followed their compliance 
obligations. That kind of information is sometimes available in 
today's cryptocurrency market but too often it is not. Not all 
platforms comply with existing regulations, and many operate in 
jurisdictions beyond the reach of the United States law 
enforcement agents.
    At the end of the day, an investigation is only as 
successful as the information and resources available. 
Blockchain technology does offer fascinating possibilities, and 
I look forward to seeing how it develops, but we should also 
recognize the role that cryptocurrency is playing in criminal 
activity. Only then can we take steps necessary to protect our 
health, our safety, and our national security. Thank you.
    Chairman Brown. Thank you, Mr. Stansbury.
    I will begin the questions with Mr. Levin, but first, Mr. 
Mosier, you mentioned the request for the dollars. The 
President signed the bill a couple of days ago with $50 
million, a significant number obviously, to combat money 
laundering. So your request was granted.
    Mr. Mosier. Thank you. I will not take credit for that.
    Chairman Brown. Oh, go ahead.
    Mr. Levin, you noted that in 2021 the volume of illicit 
crypto transactions grew something like, at least $14 billion, 
a pretty big number. You explained the methods criminals use to 
conceal their transactions, new tactics like chain-hopping or 
mixers to obscure the trail of funds.
    These are the strategies they are using right now. Tell us, 
if you would, what are the emerging ways that illicit actors 
are exploiting digital assets to avoid detection and obscure 
their identities? What are their next moves that you expect?
    Mr. Levin. Thank you, Chairman. So when it comes to these 
types of obfuscation techniques or any sort of anonymizing 
techniques that the criminals pursue this is a very cat-and-
mouse type situation where Chainalysis, the business, we 
research these techniques and stay, oftentimes, one step ahead 
of these criminal actors.
    And so you mentioned chain-hopping and mixing. I think the 
largest gap is truly on the offshore exchanges that you also 
mentioned, in being able to cash out these types of 
transactions. You will note in the Crypto Crime Report that we 
put forward there is a concentration of cashouts by ransomware 
actors at only a few destinations. And so if law enforcement 
could focus in on those we could get ahead of some of the 
illicit flows that you are concerned about.
    Chairman Brown. Thank you. Mr. Stansbury, it seems digital 
assets have enabled and emboldened whole new types of criminal 
activity. Look at ransomware, that you discussed. There are now 
criminal groups that license out ransomware software to other 
hackers, or take dark web markets, where people can buy and 
sell drugs and stolen credit card numbers using crypto.
    Mr. Stansbury, how have criminals used features of digital 
assets to invent new kinds of crime, and as you answer that, 
what kinds of criminal conduct are built around these 
cryptocurrencies?
    Mr. Stansbury. Thank you, Senator. Yeah, I think I would 
divide it into a couple of different categories. As you 
mentioned, cryptocurrency has made some crimes, some existing 
crimes, easier and has changed the nature of some crimes, like 
extortion. Ransomware has been around for a while, but 
cryptocurrency has changed the way extortion looks, and 
ransomware is a perfect example of that. Cryptocurrency is now 
the currency for ransomware. A senior director in the FBI 
mentioned, just this year, that cryptocurrency is the exclusive 
medium for exchanges for ransomware. So in some ways it has 
made things easier for existing crimes and changed the nature 
of those crimes.
    In other ways it has provided new opportunities for new 
crimes. The DOJ Cryptocurrency Enforcement Framework from a 
couple of years ago I think does a nice job of outlining that 
and framing it. But I would say that any time you build a new 
financial ecosystem it presents new opportunities for 
criminals, obviously. And so that means that exchanges can be 
hacked by North Korea. It means that wallets can be hacked. It 
means that there are new scam opportunities, and we have seen a 
variety of those scams increase in frequency over the last 
year. In fact, Chainalysis does a nice job of describing some 
of those techniques.
    So it both can contribute to existing crime and also create 
new opportunities.
    Chairman Brown. Thank you. Mr. Chobanian, the 2022 Crypto 
Crime Report from Chainalysis pinpoints Russia as a leader in 
illicit criminal activity using digital currency. Many 
ransomware groups, like Evil Corp--that is actually what they 
call themselves--are based there. Moscow is a hub, as you know, 
for crypto money laundering.
    Why is it important that we crack down on Russia's 
cybercrime that uses digital assets?
    Mr. Chobanian. Very good question. Well, obviously, 
cybercrime is not good but I will have to stress out one thing. 
Think of crypto as energy, for example, nuclear energy. You can 
use nuclear for good, to create cheap energy, or you can create 
bombs with nuclear energy. So the same with crypto. You can use 
it for good or you can use it for bad. It depends on who uses 
it and how he uses it.
    So in terms of hackers, and especially Russian hackers, I 
think that pretty much they are stuck in Russia right now and 
there is nothing that they can do with this crypto, as I said 
before. I mean, they are sitting in a city where you cannot 
even go to McDonald's. You cannot buy any of the Western world 
goods and services. So the only thing they can do is just look 
at the numbers. So right now I do not see that there is a big 
problem, but it potentially could be a big problem if something 
happens to Russia, not the way that we plan in Ukraine.
    Chairman Brown. Thank you. Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman. Mr. Chobanian, 
first let just say our heart breaks for you and your family 
like it does for the several million Ukrainians that have been 
forced from their homes by this outrageous and completely 
unjustified brutal attack by Russia. And we are particularly 
grateful that you have taken the time to join us, despite the 
experience you are going through.
    I wonder if you could just tell us, in a simple way, for a 
layman to understand, you mentioned that you are on track, you 
are hopefully going to raise $100 million from donations from 
people all around the world who want to help Ukraine. Why is 
this being done through crypto? Why are not people just sending 
dollars and yen and euro and other currencies?
    Mr. Chobanian. Very good question. Thank you. The banking 
system I your country is totally different to my country. So 
for you it is easy just to press two numbers and you can send 
any amount to other participants that you want. With crypto in 
Ukraine it is slightly different. The first problem that we are 
solving is urgency. So in order for U.S. dollars to actually 
land in Ukrainian bank accounts it takes at least 1 day, if we 
are lucky, but usually it takes 2 days. If it is a Friday 
afternoon you have to wait until Monday.
    For my country, which is fighting right now with bare 
hands, time is the vital thing. So for the crypto, which works 
24/7, we receive money instantly and we can spend money 
instantly, and by ``money'' I am speaking in the broader terms.
    So yeah, that is the key thing. And the other thing is that 
with crypto we can attract donations from pretty much anyplace 
in the world, even countries which do not have access to 
banking but they have crypto, like in Africa or in Asia.
    Speed, urgency, and ease of use.
    Senator Toomey. And it is inexpensive, is it not?
    Mr. Chobanian. It depends. Here it depends which currency 
you are sending us. So Bitcoin and Ether is slightly expensive, 
but again, it is like $10, $20, maximum $50. But at this point 
it does not really matter. Here what we are fighting for is 
speed. The faster we buy the helmets, the faster we buy the 
bulletproof vests, the faster we buy the first aid kits, the 
more people I can save in my country. So here I am praying just 
for crypto because it is so fast.
    Senator Toomey. And given the disruptions to daily life in 
Ukraine, has there been an increase in the use of crypto as a 
medium of exchange? Are ordinary people using crypto to buy 
ordinary things, in some cases, because, of course, that is not 
common in the United States.
    Mr. Chobanian. Well, even before the war Ukraine was the 
number one country per capita in terms of crypto wallets and 
crypto usage. Now it is probably double that. The reason for 
that is you cannot buy U.S. dollars on the bank accounts right 
now because national bank closed that option on the day of the 
war.
    So if you want to buy something abroad, the only option 
that you have--and if you have like local currency, hryvnia, on 
the bank account or you have cash in U.S. dollars in Ukraine, 
yeah, that is it, the two options. So the only option to 
actually buy something abroad, you need U.S. dollars, and you 
cannot buy them. With the crypto you can actually buy USDT, 
which is a token, which is backed one-to-one to U.S. dollar. 
You can buy that with local currency. You can use that to pay 
for the helmets in Europe or in U.S. The transaction takes 
about 10 minutes, and that is it. And that is the only option 
for these small and medium businesses and for regular people 
like me.
    Senator Toomey. Thank you very much. This question is for 
both Mr. Mosier and Mr. Levin. So we all want to make sure we 
have got the tools to find the bad guys, and there are bad guys 
out there. For a very long time we have had reporting 
requirements for financial institutions that serve as this 
massive dragnet, like require banks to report every single 
transaction over $10,000.
    Now we know, we have long known, that the vast, 
overwhelming majority of those transactions are perfectly 
legitimate, but we did not have a way of sort the good from the 
bad so we report them all, and we have this expensive, 
inefficient mechanism for this over-reporting in the hopes 
that, well, at least we will sweep up the bad guys too.
    With crypto we have a whole new kind of technology, it 
seems to me, and I guess what I would like you to comment on is 
rather than apply the old, outdated, like literally 50-year-old 
technology to crypto, should we be thinking about using the 
tools that crypto avails us to zero in on the likely 
problematic transactions rather than having this universal 
reporting requirement that sweeps in preferably legitimate 
transactions? If you could both comment on that, I would 
appreciate it.
    Mr. Mosier. I will start. Thank you. Thank you, Senator 
Toomey. No, I think it raises a really important question and 
something that we struggled with at FinCEN, both from a 
resource and a technology perspective and also with protecting 
personal data. And I think there is another piece of that, 
which is when we collect data we are regularly asked, I think 
legitimately, by the public and by Congress, ``OK, what have 
you done with that, that it was worth the burden?'' And, in 
fact, every rulemaking requires a burden assessment on industry 
for that.
    And I think what we struggled with was getting the tools 
and the technology to be able to sort through the data that we 
had--indeed, they still continue to do that--and we are always 
conscientious that if we are creating new reporting 
requirements, will we be able to use it, and will we be able to 
use it fast enough?
    So I think given, what Mr. Levin will surely talk to you 
about, the capabilities and what we, I think, have all 
discussed in terms of the public transparency, the critical 
piece right now is it is on a public ledger. We do not really 
need you to send stuff in. What we need are the tools to sort 
through that efficiently and connect it across data. It is 
already actually exceptionally clean data because it is 
structured data. It is numbers. It is alphanumerics. It is not 
the old days of fax machine and people writing it into the 
wrong format and we cannot sort it. So it is actually quite 
good data. It is just the ability to use it.
    Mr. Levin. Thank you, Senator Toomey, and I agree sort of 
with the premise of the question. The problem with a reporting 
requirement with a fixed number means that that becomes a 
difficult thing to change over time and creates sort of a 
deluge of information around something that seems fairly 
arbitrary in nature.
    When it comes to the blockchain, there is a complete set of 
records out there for everyone to look at, that actually also 
updates in real time, so there is no waiting for reporting to 
happen. And so not only are you able to access it, you are able 
to access it faster than you would otherwise be able to in a 
reporting sense, and then actually being able to sift through 
what is illicit activity from what is regular commerce is much 
easier in a cryptocurrency context than in traditional finance, 
where you are looking for behavioral patterns.
    So I think when it comes to thinking about regulating the 
digital asset economy we have to take into account those unique 
attributes of the technology and think about sort of as my 
esteemed colleague here said, the scarce resources that there 
are in Government agencies to actually look at this and invest 
in the technology to be able to have that real-time oversight 
of the sector.
    Senator Toomey. Thank you, Mr. Chairman.
    Chairman Brown. Senator Menendez, from New Jersey, is 
recognized.
    Senator Menendez. Thank you, Mr. Chairman.
    I have raised concerns in the past with Iran's practice of 
mining cryptocurrency in order to launder its sanctioned oil 
and natural gas reserves into cash. Because the main cost 
associated with mining cryptocurrency is energy, I worry that 
the Russian Government will also look to mining as a way to 
evade sanctions.
    According to the Cambridge Bitcoin Electricity Consumption 
Index, Russia accounts for 13.6 percent of all Bitcoin mining, 
as measured by energy consumption, so they certainly have the 
infrastructure for such activities.
    So, Mr. Stansbury, are there tools that would allow 
financial institutions and regulators to prevent use of mining 
to avoid sanctions?
    Mr. Stansbury. There are tools available to regulators, but 
I think largely it is all on the enforcement front. You are 
right that Iran has successfully mined cryptocurrency to its 
advantage. There is also a lot of reporting about North Korea 
that has turned to cryptocurrency to fund its regime. So it is 
a huge problem.
    But I think that mostly we need to look, on the enforcement 
front, how are these Nation States able to bypass sanctions? 
How are they able to convert the cryptocurrency that they are 
mining because they are moving it across borders and somehow 
converting it to a medium that they can use. So that, I think, 
is where most of the problem lies.
    Senator Menendez. Mm-hmm. And Mr. Levin and Mr. Chobanian, 
what is your understanding of the links between Russian miners 
and the Russian Government?
    Mr. Levin. Michael, you can go first.
    Mr. Chobanian. Thank you. So I can say that probably there 
is none because Russian miners are just regular people, the 
businessmen who are doing it for principles of crypto, because 
they believe in this technology or especially if they want to 
earn money, that is what they do. But again, when you talk 
about sanctions on a Government level, what kind of sums are we 
talking about? If we are talking about billions then I can 
answer you right now--it is impossible to substitute Bitcoin or 
any other cryptocurrency for U.S. dollars on the Government 
level.
    You cannot transfer that easily a couple of billions of 
dollars without anyone noticing on the physical level, so I 
would like to stress this point. It is not an issue of the big 
numbers, and smaller numbers, you know, it is not about buying 
oil or buying weapons, or buying anything else with these small 
numbers in U.S. dollars. Thank you.
    Senator Menendez. Interesting.
    Mr. Levin. Yes, and I would agree with what Mr. Chobanian 
said. I think the only other thing to raise is that it has been 
possible for U.S. law enforcement and the intelligence 
community to actually identify and attribute Russian Government 
activity inside the crime cases when it comes to the issues of 
ransomware, hacking, or other forms of financial crime. And so 
it is the case that we need to further the capabilities of 
those agencies to get close to the operatives and the 
operations of Russia in this domain to continue to understand 
the evolving picture.
    Senator Menendez. Mm-hmm. Now there is a difference between 
the Russian Government and Russian oligarchs. The Government's 
relationship with exchanges, both foreign and domestic, is 
going to be an increasingly key element in enforcing sanctions 
going forward. We are seeing, with the current crisis in 
Ukraine, that law enforcement is reliant on exchanges 
themselves to screen users and block sanction targets.
    Mr. Stansbury, what are the risks to U.S. persons and 
institutions that are trading with exchanges in Russia and 
other jurisdictions with poor monitoring and know-your-customer 
rules?
    Mr. Stansbury. One of the risks is scam, fraud, and theft. 
So, you know, there is a degree of risk that any consumer is 
taking when they place their investment money into the 
cryptocurrency ecosystem, and in a high-risk environment like 
that I think that is one of the chief concerns, particularly as 
cryptocurrency grows in popularity and less-sophisticated 
investors get into the market.
    Senator Menendez. And finally, Mr. Levin, your firm 
estimates that of all the ransomware payments made in 2020, 15 
percent of them carried a risk of sanctions violations. So 
essentially victims of ransomware attacks are increasingly 
finding themselves targeted by sanctions entities and therefore 
victims that make ransom payments in cryptocurrency may 
themselves be committing sanctions violations. How should we, 
in Congress, think about addressing this problem without 
undermining the efficiency of our sanctions tools?
    Mr. Levin. Thank you, Senator. It is a delicate balance 
between the issue of sanctioning and disrupting the cybercrime 
activity and raising the deterrence against such attacks. And 
so I think the effective sanctions against entities like Evil 
Corp that have been sort of behind these types of attacks has 
meant that there are fewer firms that are willing to actually 
pay those ransoms, which does actually reduce the incentive by 
which they have to attack our population.
    And so I think it is another example of how effective 
sanctions can be when it comes to disrupting activity that we 
are worried about for our public safety.
    Senator Menendez. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Menendez.
    Senator Hagerty, for Tennessee, is recognized.
    Senator Hagerty. Thank you, Mr. Chairman, and Happy St. 
Patrick's Day to everybody today.
    Over the past year, law enforcement has recovered billions 
in stolen crypto. All of this has been done in an ecosystem 
that has been often described as anonymous, illicit, the Wild 
West, in fact, of illicit finance. But in my view it is 
inconsistent with the architecture of blockchain technology 
because most cryptocurrencies are built on a public ledger, 
that makes the chain of ownership visible, and by extension, it 
makes it traceable to any token's existence at any point.
    Mr. Levin, I will start with you. Cryptocurrencies are 
pseudo-anonymous, right? The wallets addresses themselves do 
not identify the owners. But with the proper tools and proper 
legal authority what capabilities exist to actually track and 
identify illicit actors in cryptocurrencies such as Bitcoin?
    Mr. Levin. Thank you, Senator, and it is an important point 
to make because it is often conceived that cryptocurrency is 
not as transparent as it actually is. So when it comes to 
having the necessary tools in place, Chainalysis, what we do is 
we map all the transactions that occur in cryptocurrencies to 
the entities and services that people are using to conduct that 
activity. And so the fact that all of the industry and all of 
law enforcement and the regulatory authorities can all have 
access to that same information about what services and what 
entities are behind these transactions, you know, that allows 
us to take unprecedented steps in being able to collaborate on 
weeding out illicit activity.
    You point out that the Government has also managed to seize 
record sums of money from these cases in a world in which 
people thought that it was anonymous and that it was unable to 
be seized. So law enforcement can have these types of successes 
in this environment.
    Senator Hagerty. I think it is interesting, when you 
compare cryptocurrency to cash, on the other hand, and if you 
think about cash, cash is fully anonymous. It is untraceable. 
There is no underlying record of the chain of ownership with 
cash, and no one knows where a particular $100 bill may have 
been, whose hands it may have passed through, or how many hands 
it may have passed through.
    So it seems to me that an individual that wants to break 
the law without being traced would probably find cash a more 
attractive alternative than cryptocurrency. Do you agree that 
cash is less traceable than cryptocurrency?
    Mr. Levin. Indeed, Senator, cash is far less traceable than 
cryptocurrency for the point that you point out. The other 
thing about this is that it is the case that law enforcement 
also has the permanence of the record when it comes to 
cryptocurrency. The cases far back in the past can be solved 
based on information that is collected in the future.
    The problem with a cash transaction is that when I hand you 
a $10 bill that is a completely ephemeral event, and that is 
never captured forever. And so your prosecutors are able to 
actually leverage the permanence of the blockchain to have 
conclusive evidence of the type of illicit activity that we are 
worried about, which is another deterrent against criminals 
using it.
    Senator Hagerty. Yeah, I completely agree. Yet when you go 
back to thinking about cash, I do not hear anybody saying that 
we ought to outlaw the use of cash. Do you hear that? I do not 
think so.
    In reality, the mischaracterization that crypto is the Wild 
West of illicit finance, you know, I would hate to see that be 
used in a way to open the door to drop a morass of regulation 
on an industry that poses so much potential for America and for 
our competitive advantage.
    Mr. Levin, I would like to continue to follow up there. 
There is a lot of discussion here on Capitol Hill that Congress 
needs to craft legislation to make it harder to use 
cryptocurrency to evade sanctions. One of your firm's 
specialties is tracking cryptocurrency transactions and 
monitoring potentially illicit activity. So hypothetically, how 
would someone trying to evade sanctions convert their 
cryptocurrency holdings into fiat without interfacing with the 
banking system?
    Mr. Levin. So, Senator, the question about how to move from 
cryptocurrency into traditional finance requires a traditional 
financial institution, and there are these interfaces that have 
been, you know, the subject of anti-money laundering 
legislation globally. And so I think, to your question, you 
cannot move from cryptocurrency into traditional finance 
without interfacing with one of those institutions that has the 
regulatory obligations that protect us against its abuse.
    Senator Hagerty. The sanctionable regulatory obligations, 
just to be clear.
    Mr. Levin. Yes.
    Senator Hagerty. Mr. Mosier, just very quickly, I think 
that there has been a lot of attention paid to the possibility 
that digital assets are undermining America's sanctions regime, 
and I would like to get your perspective on what Congress can 
or should do to help authorities and firms in the crypto space 
more effectively fight illicit finance.
    Mr. Mosier. Thank you, Senator Hagerty. Yes, I think the 
most important thing that Congress can do is help provide 
clarity. There are a lot of crypto firms out there that would 
like to be certain in that they are complying with the law, and 
I think there is a lot of debate, particularly across the SEC 
and the CFTC, about what exactly is needed to be in compliance.
    Senator Hagerty. And who is in charge of compliance?
    Mr. Mosier. And who is in charge of compliance. And I think 
there are a lot of people that really want to have a business 
model that is successful for everybody, and, by the way, that 
means a safe financial system that people feel comfortable 
putting their money into, and they are just looking to know 
``what exactly should I do, what is the standard and what 
should I meet?''
    Senator Hagerty. I appreciate your point on certainty and 
clarity. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Hagerty.
    Senator Tester, from Montana, is recognized.
    Senator Tester. Thank you, Mr. Chairman. I want to thank 
you all for being here, both virtually and in person. I am 
going to start out with a question that has already been 
probably answered but I just want to hear it from your lips to 
my ears. And that is, do you think Putin and the oligarchs are 
using cryptocurrency to get around sanctions? Yes or no.
    Mr. Levin. Sorry. Is that a question for me, Senator?
    Senator Tester. It is for you first, Mr. Levin. I am going 
to go down the list, but very quickly.
    Mr. Levin. Thank you, Senator. So we have not seen evidence 
of Russia or Putin systematically using cryptocurrencies to 
evade sanctions at this moment in time.
    Senator Tester. OK. Mr. Mosier, would you like to respond 
to that?
    Mr. Mosier. Thank you, Senator Tester. No, in fact, I will 
quote my successor, as counselor to the Deputy Secretary of the 
Treasury, who recently said, ``You cannot flip a switch 
overnight and run a G20 economy on cryptocurrency. There just 
isn't the liquidity.''
    Senator Tester. OK. And Mr. Chobanian?
    Mr. Chobanian. I would say no, and the reason for that is 
they tried to ban crypto for a long, long time, and the only 
time when they said that probably they should reconsider their 
decision is after the war. So I would say most definitely no.
    Senator Tester. Thank you. And Mr. Stansbury, do you have 
an opinion on that?
    Mr. Stansbury. I would just add that I think there might be 
a difference between individuals engaging in that activity and 
whether it is occurring at scale. I think the possibility is 
certainly there, which is why DOJ has recently set up a task 
force to address just that issue.
    Senator Tester. OK. And so, Mr. Levin, I think that you 
pointed out that the reason why crypto is safe is because it is 
totally trackable. Correct?
    Mr. Levin. The inherent transparency does provide 
advantages, yes.
    Senator Tester. So we had folks that came after the 
Colonial Pipeline with ransomware, and we got 85 percent of the 
money back. Why did we not get 100 percent, if it is totally 
trackable?
    Mr. Levin. That is a great question. I think when it comes 
to the ability to see the money versus seize the money, it is a 
distinction which is not always the case. There was a 100 
percent degree of transparency about where the money was 
actually going, but in terms of actually the operation to be 
able to recover the funds, you know, that is not always 100 
percent possible.
    Senator Tester. Mr. Stansbury, the question for you is in 
your statement you had talked about the fact that is very 
difficult to connect people with the payments when it comes to 
illegal activity. Is that pretty much what you said? I was just 
curious.
    Mr. Stansbury. Yes, Senator, thank you. I was making the 
point that it can sometimes be difficult to connect the last 
two dots in terms of linking cryptocurrency payments to 
specific individuals. Firms like Chainalysis can do a fantastic 
job of looking at patterns and giving law enforcement a lot of 
tools to follow financial transactions on the blockchain, but 
ultimately you have to connect those things to real people, and 
that is not always available just through analytics.
    Senator Tester. All right. And so if you cannot connect 
people with payments, how can you hold people accountable for 
illegal activity?
    Mr. Stansbury. There are a lot of tools at law 
enforcement's disposal, but, you know, things have to go right. 
I think a good example is the recent seizure announced by DOJ 
last month, the record seizure of cryptocurrency payments. Now 
those are allegations so I want to be careful and say that.
    But they worked for 5 or 6 years to connect the dots, and 
even though they were able to identify certain payment patterns 
by those individuals who were in possession of Bitcoin that 
came from the hack of an exchange back in 2016, it really took 
sort of traditional law enforcement tools like search warrants, 
and it also depended on the fact that, for example, the 
defendants were living in plain view in New York City, and they 
were using cloud storage accounts that were within the reach of 
U.S. law enforcement so they could serve search warrants on 
those accounts.
    So it is really fact dependent, Senator, on whether law 
enforcement is going to be able to sort of get that last piece 
of the puzzle.
    Senator Tester. Well I certainly appreciate all your 
perspectives, and I can tell you that the reason, at least from 
my perspective, why cash is a whole lot different than 
cryptocurrency is it takes a lot of suitcases to transfer the 
kind of cash that you are talking about, what I believe is a 
simple press of a button in crypto.
    I think this is a great hearing. I think that there is far 
more information to be fleshed out there, and I want to thank 
the Chairman for holding it.
    Chairman Brown. Thank you, Senator Tester.
    Senator Smith, from Minnesota, is recognized.
    Senator Smith. Thank you very much, and I agree, Senator 
Tester, this is a very interesting hearing and I am grateful 
for our panelists for being here today.
    So as we focus on controlling the illicit use of crypto 
there is this discussion about how we should regulate it, and 
how we should regulate digital assets in order to control the 
bad guys. And so to a certain extent it seems like what we are 
trying to do is to fit this new technology into existing 
regulatory frameworks. So, for example, should we think of 
digital assets as commodities in the jurisdiction of the CFTC, 
or should we think about it as security in the jurisdiction of 
the SEC, and maybe neither of those frameworks are the right 
way of thinking about it.
    But it seems to me that without some regulatory framework, 
without a cop on the beat, so to speak, we are at a great 
disadvantage in terms of cracking down on illicit use. So I am 
not advocating for one framework versus the other, but I am 
wondering--Mr. Levin, I am going to ask you this--I guess the 
first question is what impact is there when, with a lack of a 
clear regulator or regulatory framework, what impact does that 
have? Let me ask you that first.
    Mr. Levin. Thanks, Senator, and I share the concern that 
you have when it comes to the clarity point. And the impact of 
that on really the U.S. and the industry in general is that 
there is less funding available, there are fewer innovators 
actually going to work on this type of technology inside this 
jurisdiction, which gives rise to the possibility that the 
financial rails that are going to govern the 21st century are 
going to be built outside of this country and beyond our 
ability to have real insight, and the records of what is 
actually happening in these types of new payment systems.
    So I think the twofold is that we are going to lose out on 
a very large economic promise, which is that this is an 
economic industry that will create dynamism in this economy, 
but second, we may lose out on the national security risk, that 
we lose some visibility into what could be conducted on these 
rails if they are built outside of this country.
    Senator Smith. So if we are building a regulatory framework 
that becomes a standard, then we have, by definition, more 
national security benefit because we understand what those 
standards are and we have more control.
    Mr. Levin. Yeah, that would be correct, Senator.
    Senator Smith. And it is sort of a truism of business, in 
general, broadly speaking, when they think about regulation 
that they will say, ``I just want to know what the rules are so 
that I can follow them, and I want an even playing field,'' the 
good businesses, the businesses that are operating above board. 
It seems like that would be pretty much the same view if you 
look at digital assets and crypto.
    Mr. Levin. Yes, Senator, indeed. So the industry in this 
country has done a lot of work on collaborating with regulators 
on the different proposals that are being put in place. They 
participate extensively in public consultation on this type of 
regulation, and there have been a lot of efforts on educating 
regulators, policymakers on really the unique attributes of 
cryptocurrencies and what potential it has for really novel 
types of oversight.
    And I think one of the points here is that the transparency 
of cryptocurrencies and the availability of the data means that 
there can be greater oversight for these financial regulators 
in novel ways that actually this Committee has been very 
focused on achieving in broader financial services and actually 
setting up a regulatory architecture that can endure over time 
but costs less for business and is more effective.
    Senator Smith. And Mr. Stansbury, to the same extent that 
having an understandable regulatory framework can create a fair 
and even playing field for good actors, how do you respond to 
this if you are trying to figure out how to crack down on the 
bad actors? What impact does the lack of a clear regulator or a 
clear regulatory framework have if you are trying to take 
advantage of the system, like we know some are?
    Mr. Stansbury. Thank you, Senator. Yeah, I think the lack 
of clarification lends itself, obviously, to the sort of murky 
situation that we have now where we clearly have a group of 
exchanges working in the cryptocurrency world that are 
trustworthy, doing the right things, and that are providing the 
kind of know-your-customer information and things that are 
helpful to prosecutors and investigators. But the lack of 
clarity also contributes, I think, to a very large ecosystem of 
institutions that are working outside that.
    And so I think the clarity would help, but also I think 
enforcing the Bank Secrecy Act more aggresively could help, and 
drafting maybe tighter rules on money transmitters like 
cryptocurrency exchanges and payment providers. There has been 
some movement like that, but those things help on the 
enforcement front because it helps push people toward the 
legitimate exchanges, I think.
    Senator Smith. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman Brown. Thank you, Senator Smith.
    Senator Warren, from Massachusetts, is recognized.
    Senator Warren. Thank you, Mr. Chairman.
    The cryptocurrency market has exploded over the past few 
years, with the volume of crypto transactions reaching nearly 
$16 trillion last year. That is up about 600 percent just from 
2020.
    Now most of that growth has been driven by speculation and 
gambling, but we also know that crypto provides a new payment 
option for criminals and cheats, and it is how those who attack 
our systems with ransomware collect their money, with the least 
risk that they will be caught. In fact, according to one of our 
witnesses who is here with us today, about three-quarters of 
the money collected in ransomware attacks last year went to 
Russia-linked actors. So Russians certainly know how to run 
illegal scams through crypto. And we know that other countries 
have used crypto to evade sanctions.
    Mr. Levin, your company tracks illicit finance in crypto. 
Do you know which countries have already used crypto to evade 
sanctions?
    Mr. Levin. Thank you, Senator, for the question. It is an 
incredibly important issue and something that we spend a lot of 
time researching and detecting, actually.
    So when it comes to sanctions evasion the transparency of 
the blockchain actually does----
    Senator Warren. Excuse me. My question was do you know the 
three countries that have already used crypto in order to evade 
financial sanctions?
    Mr. Levin. We have detected the use of cryptocurrency in 
Venezuela, Iran, and North Korea.
    Senator Warren. OK. And just last week, FinCEN, the Federal 
agency responsible for identifying financial crimes, issued a 
warning that in light of the sanctions against Russia, quote, 
``sanctioned persons, illicit actors, and their related 
networks or facilitators may attempt to use crypto and 
anonymizing tools to evade U.S. sanctions and protect their 
assets around the globe,'' end quote.
    Even so, the crypto industry claims that Russians cannot 
use crypto to hide their wealth because the $3 trillion crypto 
market is too small and too transparent for that to work.
    So let us test that out just a little bit. Mr. Levin, let 
us consider one of Putin's cronies, who already has a billion 
or so in crypto, that he wants to hide from the Governments 
that are enforcing sanctions on oligarchs. Now, can this 
oligarch make it harder to trace his money if he hops from one 
blockchain to another, if he deposits those tokens into a 
couple of wallets that do not require him to provide 
identifying information, and if uses a mixing service that 
launders his money with other people's money?
    Mr. Levin. Thank you, Senator. So the scenario that you 
describe where an oligarch has $1 billion to be able to launder 
requires significant amounts of liquidity to be able to 
obfuscate that amount of money through the use of 
cryptocurrency. In fact, many times we have been able to 
identify----
    Senator Warren. I am sorry. Let me just remind you of what 
my question was again. What I am asking is about the tools that 
are available. Now he may have to break it up into multiple 
pieces of who knows, $100 million at a crack. But the question 
I am asking is does hopping from one blockchain to another, 
does depositing tokens in a couple of wallets that do not 
require him to provide identifying information, and does using 
a mixing service all make it easier for him to hide his money?
    Mr. Levin. So, Senator, the answer to that question is no, 
because the chain-hopping that occurs, you need to actually 
provide the tokens, which in a transparent way allows you to 
move across blockchains. We have actually got software that 
allows----
    Senator Warren. So you do not think chain-hopping makes it 
any easier to hide your money? How about depositing tokens in 
wallets that do not require identifying information?
    Mr. Levin. You can always split the money up into wallets 
that do not require----
    Senator Warren. And that would help hide the money?
    Mr. Levin. But that does not remove the record of where the 
money actually sits----
    Senator Warren. The question I am asking is does it make it 
harder to track the money?
    Mr. Levin. No. So it does not make it harder to track the 
money because there is----
    Senator Warren. And using a mixing service, you are telling 
me, does not make it harder to launder money?
    Mr. Levin. The daily liquidity value of mixing services 
globally is about $30 million. And so, therefore, it would----
    Senator Warren. So he might have to do this day by day?
    Mr. Levin. And we have done extensive work in tracking 
large sums of money through mixers that have led to the arrests 
of people and the disruption of their activities.
    Senator Warren. You know, I am actually a little surprised 
by your answer, since you charge a lot of money to untangle and 
track assets through the system, and the system keeps 
developing more ways to obscure that money, and that is part of 
what you advertise.
    But I want to get on to a question with Mr. Stansbury. You 
are a former Assistant U.S. Attorney who has led major 
cybercrime and money laundering investigations. So let me ask 
you, is it possible that the oligarch, my hypothetical 
oligarch, could now buy and sell some of the things that he 
wants--diamonds, art, maybe even real estate--without ever 
needing to put his money into the formal banking system, which 
also would make it harder for law enforcement to catch him?
    Mr. Stansbury. Thank you, Senator. Yes, it is theoretically 
possible in today's market. Obviously, it is hard, but at least 
if he is able to go to a friendly jurisdiction and use 
cryptocurrency exchanges or some other platform that is not in 
compliance with internationally recognized anti-money 
laundering standards, as you have suggested, that is possible. 
There is also some reporting recently of jurisdictions being 
friendly for some purchases of real estate and other items 
through cryptocurrency.
    Senator Warren. So no one can argue that Russia can evade 
all sanctions by moving all its assets into crypto, but for 
Putin's oligarchs who are trying to hide, well, a billion or 
two, a few hundred million, crypto looks like a pretty good 
option.
    And that is why I am introducing today my Digital Asset 
Sanctions Compliance Enhancement Act, along with nine members 
of the Banking Committee, including the Chairman of the Senate 
Armed Services Committee, the Chairman of the Senate 
Intelligence Committee, and the Chairman of the Defense 
Appropriations Subcommittee, and several other Senators. This 
is a bill that would authorize the President to sanction 
foreign crypto firms that are doing business with sanctioned 
Russian entities, and authorize the Secretary of the Treasury 
to act.
    Thank you for being indulgent, for letting me run over on 
time. I appreciate it.
    Senator Toomey [presiding]. Senator Lummis.
    Senator Lummis. Thank you, Mr. Chairman. I appreciate your 
appearing here today. Thank you for joining us.
    Mr. Mosier, I want to ask you a straightforward question, 
based on your law enforcement experience at the Treasury 
Department. If an investigator was forced to choose between 
investigating an illicit finance case involving cash or digital 
assets, which do you believe most would choose, and why?
    Mr. Mosier. Thank you for the question, Senator Lummis. I 
think there is no question--and this comes from time at the 
Department of Justice and also being the head of enforcement at 
OFAC--it is far, far faster to get to the critical point that 
you need to dig deeper with cryptocurrency, given the nature of 
the public ledger. This is for several reasons. One, you have a 
public, immutable ledger.
    So if you take the example of when OFAC designates an 
address, within hours mathematical heuristics from Chainalysis, 
TRM, Elliptic, all these tools out there, are quickly building 
out all the public ledger networks that are associated with 
that address through cospending and other relatively 
mathematically certain ways of at least knowing what the 
association is. In the fiat world, you seen an address and for 
the next 3 years you do Mutual Legal Assistance Treaty requests 
and hope that you get something back. You guess what regional 
banks might be involved, based on the customers you think it is 
going to be, and send subpoenas, and hope that they come back. 
And then you manually try to associate addresses with entities. 
It is just exponentially faster.
    Senator Lummis. Thank you. Mr.--is it Le-VIN or LEV-in?
    Mr. Levin. Senator, I respond to either, but it is Levin.
    Senator Lummis. Levin. OK. Thank you. Chainalysis found 
that approximately 0.15 percent of all digital asset 
transactions were related to illicit finance in 2021. Is that 
correct?
    Mr. Levin. Yes, 0.15 percent. Yes.
    Senator Lummis. The United Nations recently estimated that 
money laundered in the traditional financial system is between 
$800 billion and $2 trillion in U.S. dollars a year. So how 
does that compare with digital assets?
    Mr. Levin. Thanks, Senator. So just to put the like-for-
like comparison, it is important to look at the percentages as 
estimates. And so in the traditional financial sector, the OCED 
and IMF and others, estimates somewhere between 2 to 5 percent 
of world financial flows are related to money laundering and 
illicit flows, comparing that to the 0.15 percent when it comes 
to cryptocurrencies.
    Senator Lummis. So clearly cryptocurrencies have a smaller 
illicit use than fiat currencies.
    Mr. Levin. Yes, Senator, that is correct.
    Senator Lummis. OK. Is Mr. Chobanian online?
    Mr. Chobanian. Yes, I am.
    Senator Lummis. Oh, excellent. I have a question. Hi, Mr. 
Chobanian. I so appreciate your being here. I want to ask you 
about the record sums of money that the people of the world 
have donated to Ukraine using digital assets over the last few 
weeks. How long did it take for you to set up the 
infrastructure to begin accepting donations, and how long does 
it take for the Ukrainian Government to begin to use those 
donations?
    Mr. Chobanian. Thank you. So the setup was about 10 
minutes. The hardest part was to actually put the addresses on 
Twitter because we had to go through the bureaucracy of who is 
in charge of a Twitter account of Ukraine. And in terms of 
usage, the minute the crypto landed on these addresses, the 
Government could use them, so immediately. No bureaucracy here.
    Senator Lummis. So how long and how burdensome would it 
have been for you to accept donations using traditional forms 
of payment from other countries, including wire transfers?
    Mr. Chobanian. If I can remember and recall correctly, I 
think it took National Bank about 10 days to post the IBAN and 
the rest of the correspondent addresses needed to wire the 
money to Ukraine.
    Senator Lummis. So digital assets have made an important 
difference to the defense of Ukraine. Is that true?
    Mr. Chobanian. I am sorry, differently. We actually 
received the first humanitarian aid on the second day after we 
received the first crypto, so we spent it immediately, and the 
next day the goods were in Ukraine, less than 24 hours. Is that 
the answer?
    Senator Lummis. That is the answer, and I am so pleased you 
were willing to take the time to be with us today, because 
while a lot of attention has been paid here in Congress to 
whether the Russians could use digital assets to evade 
sanctions, there has been very little attention paid to how 
much the existence of digital assets have benefited the 
Ukrainians in being able to get badly needed supplies.
    So I am deeply grateful to all of our witnesses today. 
Thank you very much, Mr. Chairman. I yield back.
    Senator Toomey. Is Senator Warner with us remotely?
    Senator Warner. I am, Senator Toomey. I am here.
    Senator Toomey. Senator Warner is recognized.
    Senator Warner. Thank you, and I do appreciate you and the 
Chairman holding this hearing, and I think there is a little 
bit of a conundrum here, as somebody who has been looking at 
this issue for some time, as Chair of the Intelligence 
Committee. I am not sure the kind of positing of this is an 
either/or circumstance is the correct posit. I believe there is 
some value in digital assets. I think we need to continue to 
explore it.
    And, you know, candidly, I want to acknowledge Senator 
Lummis' last point with our witness from Ukraine. This has been 
a way to move assets to the Ukrainian people in a relatively 
fast way, and I want to commend that.
    But I also want to start--and I am actually proud to be one 
of the sponsors, along with Senator Warren, because I am hugely 
concerned that because of some of this ease of transferring of 
assets that has helped the Ukrainian people, as we have seen 
from some of the press reports and we litigate the Reuters 
article, that that same ease and, frankly, lack of transparency 
has allowed, and will allow Russian oligarchs--and I hope we 
can move further and not just sanction the top oligarchs but we 
ought to sanction the whole Russian Duma for being complicit 
with Putin's illegal invasion of Ukraine. But that same ease is 
allowing conversion of fiat currency to crypto, to then 
potentially buying properties in Nations around the world that 
have accepted this.
    But I want to start with Mr. Stansbury, because on the 
whole question of ransomware, I respectfully disagree very 
strongly with Mr. Levin's analysis of 0.15 in terms of illicit 
payments, and again, one of the reasons why we passed--and I 
appreciate everybody's support on this--a mandatory cyber 
reporting bill. We only had about a third of the cyber 
incidents being reported to the Government that need to be 
reported, so can share, frankly, with our private sector 
partners. But I can assure you, and we saw this with the 
Colonial Pipeline incident, that I believe the volume of 
ransomware that is paid in crypto assets, Bitcoin, et cetera, 
is exponentially higher.
    Mr. Stansbury, the continued growth and profitability of 
ransomware, do you see that connection to the ability and the 
liquidity brought about by cryptocurrencies, and that 
interaction? I think it is, again, much higher than what the 
other witness testified to.
    Mr. Stansbury. Thank you, Senator Warner. I would agree, 
and, in fact, the FBI and other agencies have indicated that 
ransomware incidents are much, much higher than all of those 
that we hear about and know about, obviously, because not all 
of them are reported, and I think we have a lot of unknowns.
    And in terms of where the trends are going, I think that 
probably tells you a lot of what you need to know. Last year, 
in October, in a FinCEN report, it was revealed that SARs 
filed, in I think 2021, were projected--in the first half of 
2021--were projected to have a higher ransomware-related 
transaction value than SARs filed in the previous 10 years 
combined.
    So I think the trend tells us that cryptocurrency works. 
The fact that it is the exclusive tool for ransomware actors I 
think tells us a lot. So I would look at that evidence as much 
as anything else.
    Senator Warner. And I completely agree with that, and 
again, I think one of the things that this new law will have is 
cyberincident reporting but also there will be some ransomware 
reporting, so we will have, candidly, better data.
    And the notion, frankly, that the Russian Government, in 
one effort, did help us potentially identify some of the 
Colonial Pipeline ransomware criminals, using crypto as their 
payment methodology sure as heck means the Russian Government 
knows how to use this currency, knows how to use this payment 
method. And I think we need to make sure there is not the 
leakage of these sanctions.
    We all want to sanction the bad guys in Russia. I think we 
ought to broaden those sanctions, and I think the legislation--
and I hope we will be able to work through this and gain 
broader-based support, that Senator Warren and a group of us, 
eight of us, nine of us, have put together, will ratchet off 
that ability to evade those critically important sanctions.
    I know I have gone over time, but I hope we can come back, 
Mr. Chairman, and revisit this issue in a broader way. Thank 
you.
    Chairman Brown [presiding]. Thank you, Senator Warner.
    Senator Cortez Masto is recognized, from Nevada.
    Senator Cortez Masto. Thank you, Mr. Chairman, and thank 
you to the panelists.
    Let me associate myself with some of the comments by 
Senator Warner, and let me start with this to the panelists.
    Mr. Levin, let me start with you. What are the illicit 
finance risks of digital assets? We are hearing from law 
enforcement agencies that there are still concerns around the 
use of cryptocurrency, that it is still an attractive vehicle 
for illicit financial activity. What do we need to be aware of?
    Mr. Levin. Thank you, Senator. The law enforcement agencies 
that are responsible for investigating these illicit flows need 
more resources to be able to get their arms around this new 
technology. They have to adapt a whole new way of policing, and 
they need new techniques and methods to be able to get after 
these types of crimes. Particularly in the realm of cybercrime 
and cyber-enabled crime, cryptocurrencies have been used to 
effect by those actors. But with the appropriate tooling we 
have seen successes when it comes to everything from the types 
of money laundering infrastructure that helps facilitate these 
types of crimes.
    Alexander Vinnik is sitting in jail in France, having 
started BTC-e, which was one of the major sorts of Russian 
money laundering operations, in a historical sense. And so, you 
know, cryptocurrencies with the appropriate techniques from law 
enforcement agencies can actually combat these types of illicit 
flows.
    Senator Cortez Masto. And Mr. Mosier, do you feel the same 
way?
    Mr. Mosier. I do, Senator Cortez Masto. Thank you for 
asking. And actually I just want to underscore one part of what 
Mr. Levin said. As the Acting Director of FinCEN and Deputy 
Director, I pushed and pushed and had the same argument with 
the Office of Management and Budget and the White House 
repeatedly saying there is an enormous amount of data here and 
transparency. We need the tools to be able to do it.
    What I got were questions of, ``Why do you need more than 
one?'' or ``Why do you need more than one license?'' ``Can't 
you just call somebody else who has one and ask them to look it 
up?'' And I had to explain to them, as the former in-house 
counsel at Chainalysis, I am certain that is a violation of 
license terms to simply not buy a license and have someone else 
look it up for you.
    And actually, part of the benefit of having a public ledger 
and the ability to monitor in real time to go after the people 
that are doing these things is that you need the tools to do it 
in real time to benefit from this. We do not have to wait 3 
years for a Mutual Legal Assistance Treaty, but we do need the 
resources to do it.
    Senator Cortez Masto. Right.
    Mr. Mosier. Thank you.
    Senator Cortez Masto. No, I appreciate that, because I also 
know that the concern--I have worked in law enforcement for a 
number of years addressing money laundering issues, right. The 
drug cartels in Mexico, they are always trying to figure out 
how they can move cash, whether it is actually a briefcase full 
of case, then to debit cards, to some other form or system. And 
we are always trying to follow the money, as you said, and 
track it as quickly as possible to lead us to that criminal 
activity or terrorist activity, whatever it is.
    Do either of you think that digital currency or 
cryptocurrency is going away?
    Mr. Levin. Senator, I do not think cryptocurrency is going 
away. In fact, I think that it will continue to become a more 
important financial rail for commerce more broadly. And I think 
what you are seeing is that at the beginning of 
cryptocurrencies we had cryptocurrencies that represented 
themselves in these communities that use them.
    But increasingly you see it intersecting with a broad range 
of industries. And so if you look at the art market today or 
you look at the music industry, or even how people manage their 
data for their electric vehicles, there are ways in which these 
types of value are being represented on these cryptographically 
secure ledgers to introduce brand new ways of conducting 
markets. So I do not believe it is going away.
    Senator Cortez Masto. Thank you. And Mr. Stansbury, any 
comment to add to the questions that I have just asked?
    Mr. Stansbury. No, Senator.
    Senator Cortez Masto. Thank you. And let me also say this 
to Mr. Chobanian. First of all, let me just say our thoughts 
are with you and your family and all Ukrainian citizens right 
now as they fight the cruel and deadly invasion ordered by 
Putin. And thank you for your comments around the benefits that 
you are seeing right now with respect to the cryptocurrency and 
the support for Ukraine. But is there concern that you have 
about how the people in Russia are opposing Putin's murderous 
regime by the use of cryptocurrency?
    Mr. Chobanian. That is correct. They are running away from 
ruble, and most of them are running away physically from 
Russia. And the only way for them to exist outside of Russia 
right now is actually cryptocurrency. You are not being able to 
buy a house or a car but at least you can survive.
    Senator Cortez Masto. Thank you. I know my time is up. I am 
going to submit some of my questions for the record, the 
remaining of them. But this is such an important panel. Thank 
you all for being here.
    Chairman Brown. Thank you, Senator Cortez Masto.
    Senator Reed, from Rhode Island, is recognized.
    Senator Reed. Thank you very much, Mr. Chairman, and thank 
you, gentlemen, for your testimony.
    I think one of the premises we are beginning is that you 
can divide the world into good actors and bad actors, and the 
bad actors can use cryptocurrency with great efficiency and 
great effect. The good actors, they are good people, but we are 
focused on the bad actors. And I think in Chainalysis you 
basically identify wallets that are connected to a bad actor. 
How do you do that, Mr. Levin?
    Mr. Levin. Thank you, Senator. So we track all 
cryptocurrency transactions, so not just the good actors and 
not just the bad actors. We track the entire ecosystem to be 
able to map really which services are present, putting those 
transactions into these ledgers and facilitating the movement 
of currency.
    And so when it comes to illicit activity we track 
ransomware actors and all of their enablers by actually 
gathering intelligence about those ransomware campaigns. We can 
actually also make transactions with these types of actors. We 
have a team of about 50 people that are specialist researchers 
that conduct collection on these types of illicit activities 
and specialize in specific types of crime, to be able to label 
that in our system so that not only can law enforcement 
partners investigate those types of crimes but our private 
sector customers can screen for that type of risk in these 
transactions, and prevent it, and report them as suspicious 
activity reports to FinCEN.
    Senator Reed. So effectively you are employing human 
intelligence to analyze the activity that is going on, and then 
you are identifying the bad actors and communicating that to 
your clients and others. But how effective are you in 
identifying the bad actors since there is so much anonymity in 
the system?
    Mr. Levin. Thank you, Senator. Yes, so the way in which 
this works is that not only do we have the ability to collect 
human intelligence on this activity but actually because of the 
transparency we actually can further the identification of the 
activity beyond the individual incident that we have detected.
    And so maybe just to go back to the question about 
ransomware reporting from Senator Warner is that actually we 
tend to have higher estimates of the amount of ransomware 
revenue being generated, because we can take a solo incident of 
ransomware reporting and broaden that out to be able to 
identify all of the activity that that campaign has been 
running.
    So I think it is important to see that we only need to see 
them once, and we can then unravel the financial network, due 
to the completeness of it and the transparency.
    Senator Reed. Just a final quick question. Can you reach 
down to identify real individuals?
    Mr. Levin. So, Senator, we do not collect information about 
individual people. That is collected by the regulated financial 
institutions that have to have their KYC processes, and then 
law enforcement typically uses their legal authorities to go 
and further their investigation and collect that piece of 
information.
    But the interesting thing is that the investigation can 
progress a lot faster and you can complete the picture of the 
entire financial network when it comes to cryptocurrencies 
without actually get down into the individual identity.
    Senator Reed. Just another quick question. Our assumption, 
I think, is that the oligarchs and the bad actors of the world 
deliberately have put in their portfolios cryptocurrency. That 
is an avenue they want to exploit. Is that your sense too?
    Mr. Levin. Senator, I think that assumption, you know, may 
be something that we can easily have a hypothetical scenario in 
which that is the case. I think when you look at the actual 
data about the amount of wallets that are present, and you look 
at the concentration of cryptocurrency and its use, I think the 
most sophisticated actors in Russia when it comes to 
cryptocurrency have been largely around sort of large 
cybercrime rings and not sort of large sums of money with 
Russian oligarchs.
    Senator Reed. Thank you. Just a final question, and I do 
not expect an answer. But to what extent do we have to worry 
about cryptocurrency displacing fiat currency so that there is 
really no way for the Federal Reserve, for example, to control 
or attempt to control the economy?
    Mr. Levin. Yeah, Senator, it is obviously a question that 
requires deep inspection. But the quick answer is that 
cryptocurrencies represent global communities and new ways of 
commerce, and I think it is more beneficial to view 
cryptocurrencies as truly a technology that enables a lot more 
industries and a lot more business models that can change the 
way--you know, away from, say, rent-seeking organizations to a 
much more distributed economy. And so I think that would 
complement, actually, the issuance of the dollar.
    Senator Reed. Thank you very much. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Reed.
    Senator Van Hollen, of Maryland, is recognized.
    Senator Van Hollen. Thank you, Mr. Chairman. I thank all of 
you for your testimony, and I want to thank the Chairman and 
Ranking Member for holding this series of hearings of 
cryptocurrency, because I think everybody is working to get up 
to speed on the public policy challenges. And clearly there are 
benefits, as has been described in this hearing, and there are 
also risks.
    And I think it is fair to say, and I have been trying to 
follow the testimony from my office, is that for people who 
engage in ransomware, I mean, cryptocurrency is the preferred 
method of payment today. That happened in Baltimore City. 
Baltimore City was the victim of a ransomware attack. They 
insisted on payment in Bitcoin. That was the case in the 
Colonial Pipeline. I mean, we recovered some of it, a lot of 
it. But is that not a fact, that right now at least the people 
perpetrating these crimes perceive this method of payment to be 
the best in terms of hiding their identity? Mr. Levin.
    Mr. Levin. Thank you, Senator, and yes, I was very 
intimately familiar with the Baltimore case, where ransomware 
has affected people's lives.
    So when it comes to being able to detect this, and the 
reason why criminals actually use it, is they are economic 
actors and so they are looking for methods that maximize 
profitability first, not necessarily their anonymity. And so 
cryptocurrency has been used in ransomware cases because it is 
easy to acquire Bitcoin, it is easy to send that Bitcoin 
anywhere in the world, and that is why it has risen to 
prominence inside ransomware.
    But those actors typically feel like they are beyond the 
reach of the law, and that has systematically become not the 
case as we have become a lot better at detecting the entire 
financial network that actually enables ransomware.
    And so if you look at the NetWalker case, where an 
affiliate of a ransomware campaign was arrested up in Canada, 
that was made possible because we can see the entire business 
model of these ransomware campaigns on the blockchain, and so 
we can identify those enablers and shut them off, which would 
start to disrupt the amount of ransomware that affects this 
country.
    Senator Van Hollen. Right, and a lot of the testimony here 
has been that because of the blockchain technology we are 
better able to at least track the identity of a digital wallet. 
Then there is always the challenge of figuring out who is 
behind the digital wallet.
    But in the Colonial Pipeline case, as I understand it, the 
FBI was able to get the key to the digital wallet. Is that your 
understanding?
    Mr. Levin. Senator, yes, that is my understanding too.
    Senator Van Hollen. Which is a different method of 
recovering the payment than hacking into the system, or does 
that amount to the same thing?
    Mr. Levin. So, Senator, the details of all of the way in 
which the FBI managed to retrieve those funds are not 
necessarily in the public domain, but the way in which this 
occurs is access to the key itself rather than hacking into the 
entire system. The Bitcoin system is secure. Someone's ability 
to hold those keys can be a vulnerability that could be 
exploited in those types of cases.
    Senator Van Hollen. So I want to press this point a little 
bit because it is getting to the other side of the equation, 
which is on the one hand people say, well, cryptocurrencies are 
a secure way for someone, a criminal, to hide their assets, but 
we also have cases like the Colonial Pipeline but also cases 
where crypto exchanges have been hacked, right? I mean, there 
are numerous examples of crypto exchanges being hacked. Is that 
not the case?
    Mr. Levin. Yes, that is the case, Senator.
    Senator Van Hollen. And, you know, this Committee has had a 
conversation about if you are an investor in a cryptocurrency 
what is your recourse if a cryptocurrency exchange that you 
have invested in gets hacked. Are you able to recover your 
assets? And right now there is no protection.
    Can you just speak, though, to the question of 
vulnerability and hacking of the crypto systems, because that 
seems to be another area where, on the one hand we say they are 
very difficult to penetrate, but increasingly this seems more 
like the arms race, right, where people just try to leap ahead 
of the technology. What is the vulnerability in terms of 
hacking?
    Mr. Levin. Thanks, Senator, and it is an incredibly 
important issue, particularly for consumers. So when it comes 
to the ability to hack into exchanges, these are financial 
intermediaries, where someone is holding funds on behalf of 
someone else. And in those instances, that is where regulation 
can come in and be very helpful in establishing sort of best 
practices and standards by which those exchanges and financial 
intermediaries should hold funds the same way that other 
financial institutions do.
    And increasingly what you see is, you actually see the 
largest custodians in the world--you know, the Bank of New 
York, Mellon--actually come into crypto custody to be able to 
offer really robust custody solutions, the same way that we 
have for traditional securities and other financial 
instruments.
    And so I think what we will see is that there is an 
increase in the maturity of the types of actors actually 
entering this market, where those types of vulnerabilities, at 
least on the exchange level, will start to be closed. We do see 
vulnerabilities starting to emerge in other parts of the 
ecosystem that do also need some more attention, but this is 
something that matures over time with the technology and also 
with the actors that get involved in the industry.
    And so I think you are seeing a very positive direction 
with that, with the types of actors that are now stepping into 
the space.
    Senator Van Hollen. Thank you. No, I agree with the Ranking 
Member's observation that this is an area that is here to stay 
and does require regulation, and we need to be very sort of up 
to speed on how we go about doing that. But this is one of the 
areas, it seems to me, where consumers beware and where 
regulation could be important.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Van Hollen.
    Senator Sinema is recognized from her office, from Arizona, 
from her office.
    Senator Sinema. Thank you, Mr. Chairman, and thank you to 
the witnesses for being here today.
    Arizonans and Americans stand with the people of Ukraine in 
opposition to Russia's illegal war. Just yesterday we heard 
from President Zelenskyy in a joint address to Congress about 
the tools Ukrainians need to defend themselves. I am committed 
to working with my Senate colleagues to deliver more military 
equipment and humanitarian support to Ukrainians.
    Our efforts to crack down on illicit financing are an 
integral part of this strategy, as we work to break the supply 
chains and the financing of Putin's war machine and to bring 
this needless violence to an end.
    Mr. Levin, thank you for being here today. Your company, 
Chainalysis, has helped law enforcement and our sanctions 
professionals track down illicit activity on the blockchain. I 
appreciate your team's willingness to proactively brief my 
staff last year on your company's work. For many, the idea that 
your company could help connect illicit activity on a 
supposedly anonymous platform to real people is surprising. 
Your testimony spoke to this, but briefly, how does your 
company manage to catch illicit activity in cryptocurrency 
without attempting to break the blockchain or undermine the 
integrity of the distributed ledger?
    Mr. Levin. Thank you, Senator, for the question. The 
ability for us to actually detect illicit activity on the 
blockchain depends on our ability to actually see the 
transactions. And so the public nature of the blockchain means 
that our team can look at every single transaction that has 
ever happened in the majority of cryptocurrencies. And we use a 
combination of human intelligence, where we are actually able 
to collect information and transact on these networks, with our 
machine learning algorithms that allow us to tie different 
transactions together to form a full picture of the way the 
services are being used by people to use cryptocurrency 
technology both for good and for bad.
    And so, you know, what it takes is a team of specialists 
and a lot of dedication over the last 8 years to build an 
expertise in how cryptocurrencies can be abused, and we are 
able to map out the full wallet infrastructure that these 
illicit actors are using and provide that in our tools, both to 
our private sector customers and the public sector.
    Senator Sinema. Thank you. Some more sophisticated 
criminals will use tactics like chain-hopping or make use of 
mixer or tumbler services, where they will repeatedly move 
transactions between and within cryptocurrencies to make it 
harder to track funds. Do your company services offer an 
effective response to these evasion tactics, and what is the 
biggest limiting factor in the services that your company can 
provide?
    Mr. Levin. Thank you, Senator. So yeah, when it comes to 
the issues of chain-hopping and mixing I will take them 
separately.
    So the ability to chain-hop often requires transactions 
where you lock up a cryptocurrency asset on one chain to unlock 
a rapt version on another chain, which is commonly referred to 
as chain-hopping. That activity can be seen on the blockchain, 
and we have released the ability to actually do cross-chain 
investigations on our investigation platform. So that type of 
activity actually does not provide the level of anonymity that 
it may seem in the name of it.
    When it comes to mixing services, we have, and not 
necessarily completely publicly been seen to actually have 
techniques that have the ability to de-mix certain 
transactions. And so our research and development efforts 
consistently keep with the way that people try and obscure 
themselves in financial transactions, and we have actually seen 
successes operationally, and we would be happy to follow up 
with a separate briefing on that, to actually find ways to de-
mix transactions and find the individuals responsible at the 
end of it.
    So that is where we invest R&D efforts in continuing to 
keep up and actually stay ahead, mostly, of the way in which 
criminals use or abuse cryptocurrencies.
    Senator Sinema. Thank you. Mr. Chobanian, thank you so much 
for being here with us today, and I want to express my 
continued solidarity with the people of Ukraine.
    Yesterday, President Zelenskyy signed a law legalizing 
cryptocurrency in Ukraine. Can you share a bit about why this 
was important and how Web3 technologies are providing new tools 
to help the people of Ukraine weather this illegal war and 
unprecedented humanitarian crisis?
    Mr. Chobanian. Hello. Thank you. So yeah, we have an 
official law now. The next step would be to make changes to the 
tax laws, and after that the law will be in place.
    So basically what it does, it provides rules of the game 
for the business in crypto on how we can operate, whether we 
can open a bank account--obviously, we will be--what are the 
rules for AML/KYC in regard to crypto, who is in charge, 
whether us or in the banks, and so on and so on. So basically 
within the year after we finish the war we are going to have 
the full market. And I see that you are still discussing 
whether to ban or allow crypto in U.S. I invite all U.S. 
companies to come to Ukraine and open up there. You can use 
Ukraine as a sandbox for U.S. I do not see a problem here.
    Web3, it is basically going to change the world. It will be 
the technology that we are going to use to rebuild my country, 
namely the blockchain, because it shows the transparency of 
everything, and that is the main topic that we have been 
discussing for the past hour. Thank you.
    Chairman Brown. Thank you, Senator Sinema.
    Senator Daines is recognized, from Montana.
    Senator Daines. Chairman Brown, thank you. I think this 
topic is really important for us to be discussing, given the 
war in Ukraine and recent comments. I strongly believe that 
President Biden should never have given a green light on 
Putin's Nord Stream 2 pipeline in the first place. In fact, I 
had Ukrainian leaders in my office September 30th--I went back 
and grabbed the memo--leaders from Odessa, Deputy Mayor, former 
member of Parliament, current member of Parliament. They were 
in my office pleading with us to stop the Nord Stream 2 
pipeline. That was September 30th.
    And while I am disappointed in my colleagues across the 
aisle--and by the way, if you want to see what is going on in 
Odessa just look at the latest press reports. They are gearing 
up right now. They think that is going to be the next battle 
city. They call it the Southern Capital of Ukraine, beautiful 
port city, the Black Sea, and the Russians look like they are 
headed there next, and they are hoping to save this beautiful 
opera house, other great community there in Odessa. But it is 
what it is at the moment.
    I am disappointed that my colleagues across the aisle voted 
against reimposing sanctions on the Russian pipeline earlier 
on, despite the pleas from the Ukrainians. I believe we can all 
agree that the sanctions that have been imposed thus far have 
had a significant impact on the Russian economy, and that is 
probably to say the least.
    And while it is possible, it is unclear to me that digital 
assets are being used by Russia to evade the sanctions in any 
meaningful way. In fact, Treasury officials, including the 
Financial Crimes Enforcement Network, have stated this to be 
the case.
    Legitimate crypto intermediaries, such as CoinBase, Gemini, 
others abide by KYC and AML standards, are interactively 
updating their standards to comply with the sanctions. Even 
actors utilizing so-called dark web typically need to involve a 
financial institution obligated to AML and sanctions 
requirements to convert crypto assets into fiat currency.
    At the same time, we have seen the Ukrainian Government 
explicitly solicit crypto donations. On Monday, the Ukrainian 
Government launched a crypto donation website, partnering with 
FTX, Everstake, and the KUNA Exchange, based in Ukraine, which 
will route donated crypto to the National Bank of Ukraine. 
According to the Ukrainian Government, over $100 million in 
crypto donations have poured into the website and other smaller 
funds. This demonstrates, I believe, how powerful crypto and 
other digital assets can be as a tool to revolutionize finance 
in the speed at which donations can flow around the world.
    Now turning to my questions. Mr. Mosier, can you describe 
the process of converting digital assets into fiat, and related 
to that, would someone trying to evade sanctions be able to do 
this?
    Mr. Mosier. Thank you for the question, Senator Daines. So 
actually it is a complicated process because you have got to 
get liquidity on the other side to begin with. Someone has to 
want your rubles, and there are not a lot of people in the 
world right now that want rubles. So first you have the market 
problem.
    Second, you have to find somebody that is willing to make 
that trade that also feels comfortable that they are not 
violating any sort of global laws that they are going to be 
come after with, whether it is sanctions or domestic currency 
controls. But most likely it is not going to be anyone outside 
of Russia, that is for sure, because, first of all, no one 
wants the ruble, and second, they have their own jurisdictions 
enforcement to look at, and they have global sanctions in 
probably the most united front that we have seen, certainly in 
the Western Bloc.
    Senator Daines. So drawing from your past experience at the 
Office of Foreign Assets Control and FinCEN, do you think 
blockchain technology provides certain benefits with regard to 
the ease of detecting illicit financial flows?
    Mr. Mosier. Absolutely, I do, Senator. And I think it is an 
important question because there are two benefits to blockchain 
technology that are important to think of from an American 
perspective. One is the ability to much faster home in on what 
is the bad actor that we need to worry about, because you can 
follow the transactions almost indefinitely, and it is an 
immutable public ledger, which means you can share that 
information with partners around the world. But I think there 
is another important piece here. We are sometimes talking about 
privacy like it is an obstacle, but privacy is part of the 
Constitution, as a matter of security and personal sovereignty. 
That is not just something to slow down investigations. It is 
something that we also want to protect vulnerable people. That 
is why we have subpoenas. That is why there is court process 
about this. And so what this does is instead of the dragnets, 
that Senator Toomey had mentioned before, is you focus on what 
we have already identified through activity----
    Senator Daines. I would think the Ukrainians at the moment 
would be very sensitive to the issue of privacy.
    Mr. Mosier. Exactly. Absolutely, sir.
    Senator Daines. In my remaining time I want to ask a 
question to Mr. Chobanian. Mr. Chobanian, can you describe how 
the Ukrainian Government has utilized the crypto donations that 
have been received to date?
    Mr. Chobanian. Sure. It is public information. We bought 
helmets, bulletproof vests. We bought the first aid kids, 
blood-stopping wound, something--I do not know what is the real 
name of it--the scopes, and then we bought a lot of rations for 
the soldiers, close to 500,000. We delivered money to, for 
example, people in Mariupol, to people in Kharkiv, to people in 
Sumy. So we actually sent money in crypto to those cities and 
they managed to buy, well, first of all, changed it to local 
currency or directly using crypto, to buy food and distribute 
it among the citizens of those cities. So these are the 
examples of how we are using money. Everything is transparent, 
so it is fantastic. I would say it is a lifesaving thing. It is 
impossible to do with a regular banking system.
    Senator Daines. I am out of time, Mr. Chairman. Thank you.
    Chairman Brown. Thanks, Senator Daines.
    In the interest of time--Senator Toomey has one short 
question--I will provide a question in writing to Mr. Stansbury 
and then we will wrap.
    Senator Toomey. Thank you very much, Mr. Chairman, for that 
indulgence. The question is for Mr. Chobanian. Reading a 
section of the legislation that Senator Warren referred to, one 
of the things I am concerned about is it would impose the 
equivalent of really secondary sanctions on anyone doing crypto 
business with anyone from Russia. I know the intent is to go 
after oligarchs, but it looks to me like it would have a hugely 
negative impact on anybody in Russia engaged in any kind of 
crypto transactions.
    And so my question, Mr. Chobanian, is, could you just talk 
to us a little bit about the overlap or the correlation between 
those Russian people who use crypto and those who are opposed 
to what Putin is doing, those who are maybe hostile to his 
regime?
    Mr. Chobanian. There is a very good correlation here. Well, 
first of all, the people who are using crypto in Russia are at 
least intelligent, they have money, and they understand 
technology. So these are clever people, obviously. And they do 
not watch TV, so they are not zombies of the regime, so they 
understand what is happening around the world. They travel the 
world. They see the Western world. They see how it is different 
to the regime in Russia.
    So these people are actually our closest friends, because 
they oppose Putin just as much as we do. Unfortunately, they 
cannot really do much because they do not have any insurance to 
fight the regime, at least from their point of view.
    So for us, yeah, it is very important--and I want to stress 
this out again, that it is very important that we do not block 
the regular people in Russia who are actually opposition within 
Russia. We only have to go after the sanctioned list and 
sanctioned people, and these people actually have much, much 
more wealth accumulated. So for them it is probably the 
average, you know, amount that they want to hide is in hundreds 
of millions. For the regular Russians it is probably $1,000 or 
$10,000, in equivalence.
    So we have to make sure that we do not block these people 
and we still allow for the opposition to survive, both within 
Russia and outside. Because as you know, they cannot use Visa 
or MasterCard outside of Russia right now, so the only means of 
payments they have is cash or crypto. That is it. And 
considering that all of the anarchy we see imposed in the world 
right now, you can only exchange crypto to like, I think it is 
$1,000 in most of the jurisdictions. So we have to make sure 
that we do not, you know, cutoff these people from actually 
surviving.
    Senator Toomey. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Toomey. For Senators who 
wish to submit questions for the record those questions are due 
1 week from today, Thursday, March 24th. Witnesses, please, if 
you can, you will have 45 days to respond to any questions.
    Thank you again for the testimony from the four of you. 
Thank you. And Mr. Chobanian especially, good luck to you.
    This Committee is adjourned. Thanks.
    [Whereupon, at 12:12 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
              PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
    In 2019, a doctor's office in the Mahoning Valley in Ohio 
experienced a disturbing attack: hackers locked the office computers, 
making them unusable. They even faxed over a ransom note, promising to 
unlock the computers if the practice turned over $75,000--in Bitcoin.
    Not long ago, a Syrian group tied to al Qaeda put out a call for 
donations to help buy weapons. Their social media post said that 
supporters should ``donate anonymously with cryptocurrency.''
    ``Donate anonymously.''
    A week ago today, the Justice Department announced an indictment of 
two individuals who allegedly turned the profits of scams into 
cryptocurrency. Then they'd send the crypto overseas, where it could be 
turned back into cash.
    This Committee has been examining digital assets to learn how they 
work and the risks they create for consumers and the financial system. 
We've also considered how digital assets can put workers' hard-earned 
money at risk.
    We're here today because crypto also can be used to make it easier 
to commit crimes--facilitating illicit finance, terrorism, and other 
forms of criminal activity, and threatening our national security. Bad 
actors around the world--from hackers, scammers, and drug traffickers, 
to terrorist groups and pariah regimes--have sought digital assets to 
facilitate their crimes and intimidation.
    In October 2020, under the last Administration, the Justice 
Department concluded that, ``cryptocurrency technology plays a role in 
many of the most significant criminal and national security threats 
that the United States faces.''
    To be sure, criminals have tried to cover their tracks for years 
with sham accounting and banks that looked the other way. But there's a 
simple reason that crypto appeals to crime rings and scam artists.
    The dollar has safeguards to protect against crime and illicit 
activity. Companies that deal with real money are required to know 
their customers, and report suspicious transactions. They need to keep 
records.
    And even when crypto companies are covered by the law, too many 
don't play by the same rules--especially offshore crypto operators that 
aren't subject to U.S. law.
    Shady crypto companies that fail to adequately monitor activity on 
their platforms all but give criminals a green light.
    Digital assets make it easier to move money under pseudonyms. They 
make it easier for money launderers to use webs of transactions across 
the globe to cover their tracks. And that makes it harder for law 
enforcement to trace illicit funds.
    And, the Financial Crimes Enforcement Network--FinCEN, the Treasury 
bureau charged with safeguarding our financial system from abuse--
warned last week that Russian actors could even use crypto to get 
around sanctions.
    So sophisticated bad actors can use digital assets in ways that, if 
they were using dollars, would likely raise red flags and get them 
stopped in their tracks.
    Last year, FinCEN fined a crypto exchange $100 million. For 6 
years, the only identification the company bothered to get from 
customers was an email address. That no-questions-asked approach 
enabled more than $200 million in suspicious transactions.
    But the problem isn't only shoddy compliance. It's more 
fundamental.
    We hear all the time about how ``innovative'' cryptocurrency is. 
But criminals innovate, too. Crypto allows money launderers and 
terrorists to do things they never could have done with dollars. 
There's a whole new vocabulary to explain cryptocurrency illicit 
activity.
    Take what's known as ``chain hopping.'' That's when someone 
launders money by changing funds from one cryptocurrency ecosystem to 
another, to make it harder to track.
    Or look at so-called ``rug pulls.'' That's when you set up a sham 
digital asset project online, raise as much money as you can, scamming 
investors, and then run off with all the cash.
    Then there's Hydra, the world's largest ``darknet.'' It's an online 
black market for drugs, stolen credit card numbers, and cyberattack 
services, all enabled by crypto.
    Our laws and law enforcement agencies need to keep pace with bad 
actors that will exploit every opportunity.
    And so far, with lax rules and little oversight, we've given them 
plenty of those opportunities.
    Crypto lets money launderers, hackers, and rogue regimes invent new 
ways to hide and move money in the dark. It lets hackers and scammers 
create new ways to steal or defraud. And if we allow them get out ahead 
of us, our safety and security will be at risk.
    Law enforcement is doing what it can. They use techniques to stop 
cybercrime that didn't exist 30 years ago. Financial regulators 
leverage new data and resources to expose fraud and manipulation in our 
markets.
    Crypto technology also embeds information that allows law 
enforcement and national security officials to track and trace where 
it's been--though not necessarily who owns it. That's where the tough 
new money laundering and beneficial ownership law we enacted last year 
will help.
    But as these problems continue to grow, we can't sit on the 
sidelines. We need to take a clear-eyed look at how these assets can 
endanger consumers and our security.
    Last month the FBI announced the creation of a new unit dedicated 
to tracking down illicit crypto. The Justice Department is dedicating 
more resources and staff to cracking down on crime using digital 
assets.
    We need to take a whole-of-Government approach to the problem, if 
we're going to keep up with crypto in illicit finance.
    President Biden understands that. His Executive order on crypto 
assets last week will drive progress on this issue. It will jumpstart a 
coordinated strategy from law enforcement and regulators to fight bad 
actors who want to use crypto.
    Ultimately, we can't just sit back and watch cybercriminals, rogue 
regimes, terrorists, and others create a shadow financial system that 
works for them.
    The financial system should work for American families and small 
businesses. Everything we do on this Committee has that goal in mind. 
That means that we cannot let abuses of digital assets endanger our 
financial and national security.
    As crypto technology evolves, this Committee must continue to work 
together to craft a way forward on these crypto policy issues. The 
stakes are high, and the American people are counting on us.
                                 ______
                                 
            PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
    Thank you, Mr. Chairman.
    This hearing is about digital assets and illicit finance. While it 
is appropriate to discuss and understand this topic, we also need to 
work to ensure regulatory clarity for digital assets.
    Digital assets, including cryptocurrencies and their underlying 
distributed ledger technology, have tremendous potential benefits. As 
the White House itself recently stated, the U.S. must maintain its 
leadership in this space, which is why lawmakers and regulators should 
do nothing to harm America's longstanding tradition of fostering 
technological innovation.
    Unfortunately, I am concerned that the lack of regulatory clarity 
here at home is undermining that tradition and driving innovation 
abroad. We need Congress to work together to enact a regulatory 
framework specific to digital assets that provides this much-needed 
clarity.
    While today's topic is illicit finance, the real backdrop for this 
hearing is Russia's invasion of Ukraine. By starting the largest land 
war in Europe since World War II, Russia has unleashed the greatest 
threat to global security in recent memory.
    The sanctions imposed thus far by the Biden administration are 
harmful to the Russian economy, but not crippling. The President has 
said ``all options are on the table'' in terms of sanctions. So what 
are we waiting for?
    Sanctions have purposefully allowed Russia to continue exporting 
oil and gas, funding Putin's war machine with what could be as much as 
$5 to $7 billion each week. Cutting off this revenue stream and getting 
more lethal aid to Ukraine are the two things we could do to maximize 
the chances that Ukraine wins this war, and Putin comes to understand 
this war was a calamitous blunder.
    To cut off Putin's oil and gas sales globally, the Administration 
and Congress should impose secondary sanctions on Russia's entire 
financial sector. This would force the world to choose between doing 
business with Russia or the United States. I urge the Administration to 
impose these sanctions and give Ukraine a fighting chance to win this 
war.
    I am concerned that part of today's hearing will be spent 
disparaging cryptocurrencies, trying to draw some connection between 
them and Russian sanctions evasion.
    There is no sanctions regime that is completely water tight. So 
it's quite possible that an oligarch somewhere may be using a variety 
of tools, including crypto, to try to hide some assets.
    But according to Administration officials across multiple agencies, 
there is simply no evidence of cryptocurrencies being used by Russia to 
evade sanctions in any significant way.
    Just this month, FBI Director Christopher Wray told the Senate 
Intelligence Committee that ``the Russians' ability to circumvent the 
sanctions with cryptocurrency is probably highly overestimated.'' 
Acting FinCEN Director Him Das said that ``we have not seen widespread 
evasion of our sanctions using methods such as cryptocurrency.'' And 
the director of cybersecurity for the National Security Council said 
that ``the scale that Russia would need to successfully circumvent all 
U.S. and partners' financial sanctions would almost certainly render 
cryptocurrency as an ineffective primary tool for the State.''
    The facts are clear and as the Administration has found: Russia 
cannot meaningfully use cryptocurrencies to evade sanctions.
    While there has been virtually no evidence of Russia meaningfully 
using cryptocurrencies to evade sanctions, Ukraine has been actively 
utilizing cryptocurrencies to do tremendous good. Cryptocurrency 
donations for Ukraine have reached approximately $100 million, which 
has helped Ukrainians defend their country against Russia's invasion.
    These funds have gone towards more than 5,500 bulletproof vests, 
500 helmets, and 410,000 meals, among other things. Ukraine's Deputy 
Minister of Digital Transformation has said that ``each and every 
helmet and vest bought via crypto donations is currently saving 
Ukrainian soldiers' lives.''
    We're fortunate to have as a witness today someone deeply affected 
by the war in Ukraine, and the use of cryptocurrency to help Ukraine 
and its citizens. Michael Chobanian is the Founder of KUNA Exchange, a 
local cryptocurrency exchange based in Ukraine. For the past several 
weeks, Mr. Chobanian has been instrumental in coordinating effforts so 
individuals all over the world can contribute cryptocurrencies in 
support of Ukraine's defense.
    Crypto's remarkable nature is that anyone across the globe can 
contribute to this type of effort, almost instantaneously, at very low 
cost. It is in this context that we should examine cryptocurrencies and 
their relation to illicit finance.
    Throughout history, criminals have always tried to utilize new 
technologies for nefarious gain. But that is not a reason to stifle new 
technological developments.
    Crypto can be used to empower individuals and promote personal 
autonomy, but it can also support the detection and prevention of 
illicit crime. According to Chainalysis, transactions involving illicit 
addresses account only for 0.15 percent of cryptocurrency transaction 
volume last year.
    This should be no surprise: the traceable nature of many 
cryptocurrencies is a factor making them terribly risky to utilize for 
criminal purposes. Just look at the Colonial Pipeline hack, which was 
one of the most disruptive ransomware attacks on record. The Department 
of Justice recovered 85 percent of the bitcoins that the pipeline paid 
in ransom, dealing a significant blow to the hackers.
    One of today's witnesses, Michael Mosier, can speak directly about 
the characteristics of cryptocurrencies that help detect criminal 
activity. Mr. Mosier is the Former Acting Director for the Financial 
Crimes Enforcement Network, or FinCEN, at the U.S. Treasury Department. 
His Government experience makes him uniquely qualified to discuss the 
topics before us today.
    Today I hope the Committee takes a thoughtful and reasonable 
approach to this topic, acknowledging both the risks cryptocurrencies 
present, but also their incredible potential. I thank the witnesses for 
their testimony and participation today, and look forward to the 
discussion.
                                 ______
                                 
                  PREPARED STATEMENT OF JONATHAN LEVIN
        Cofounder and Chief Strategy Officer, Chainalysis, Inc.
                             March 17, 2022
                             
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                                 ______
                                 
                  PREPARED STATEMENT OF MICHAEL MOSIER
  Former Acting Director, Deputy Director/Digital Innovation Officer, 
             Financial Crimes Enforcement Network (FinCEN)
                             March 17, 2022
    Thank you Chairman Brown, Ranking Member Toomey, and Members of the 
Committee for holding this hearing and inviting me to participate. It's 
an honor to be here. Congress represents the breadth of viewpoints 
across our society and has a critical role in reflecting and protecting 
the democratic foundation and personal sovereignty of the people.
    My grandfather was a justice of the peace in a small mining and 
steel town in Western Pennsylvania. Sadly, he died long before I was 
born. But I treasure one of his campaign cards from a 1953 election 
that announces: ``Endorsed by Labor. An avowed enemy of communism''. 
Those juxtaposed statements encapsulate a sense of collective 
empowerment of the time, but also a resolute vigilance against 
totalitarian collectivism. They underscore the importance of 
maintaining a balance. Of sufficiently empowering people, 
organizations, and Governments to prevent abuse, while ensuring checks 
on that power, so that it is not itself used to abuse.
    A desire to protect personal sovereignty in the face of abuse led 
me to public service. As a new lawyer at a firm, I took on pro bono 
cases to help victims of domestic violence obtain protective orders, 
then wanted to do more. I became a State prosecutor at the Manhattan 
District Attorney and eventually a Federal prosecutor at the Department 
of Justice (DOJ), investigating kleptocracy as well as the financing of 
human trafficking. Preservation of self-determination has guided me 
through roles as Deputy Chief in DOJ's Money Laundering Section, 
Director at the White House National Security Council, OFAC Associate 
Director, Counselor to the current Treasury Deputy Secretary, and, most 
recently, Acting Director of FinCEN.
    From my experiences, \1\ I have seen firsthand that, yes, 
investigative ability is critical, including as a deterrent; but we 
must not confuse tools with the mission, which is to preserve the self-
determination upon which our country was founded, and to empower people 
to be able to thrive and protect themselves. Preserving this balance 
requires a thoughtful approach to new technologies. If every new 
technology is viewed with suspicion, we risk harming the citizens we've 
sworn to protect. At FinCEN, we constantly invited the public for 
conversations, from cryptography professors, to civil society 
explaining how vulnerabilities are turned against people under 
authoritarian rule, constitutional privacy and speech experts, child 
exploitation and anticorruption groups, and core developers of privacy 
technology. This education was nearly weekly--an obligation as public 
servants to ensure we reflected all the perspectives of the people we 
serve.
---------------------------------------------------------------------------
     \1\ General Counsel, Espresso Systems. Previously: Acting 
Director, Dep.Dir./Digital Innovation Officer, FinCEN; Counselor 
(cybersecurity and emergent technology) to the Deputy Secretary of the 
Treasury; in-house counsel, Chainalysis; Director (transnational 
organized crime), White House National Security Council; Associate 
Director, OFAC; Deputy Chief, Money Laundering Section, USDOJ; adjunct 
professor, Georgetown University Law Center.
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    The Anti-Money Laundering Act (AML Act) \2\ passed last year 
modernizes 2 our approach to financial integrity, including the need to 
prioritize some risks over others, and to strike a balance that 
guarantees opportunity. That balance is also reflected in our 
separation of powers and our Constitution. Because no matter the best 
intentions, people are fallible. In thinking about self-determination, 
when we speak of ``illicit finance,'' we must not forget defenders of 
democracy whose financing might be considered ``illicit'' to the 
autocrats and invading armies they resist. As we painfully see around 
the world right now, it is fundamental to democracy that people have 
the opportunity to protect themselves in the face of fallibility and 
brutality.
---------------------------------------------------------------------------
     \2\ https://www.fincen.gov/anti-money-laundering-act-2020
---------------------------------------------------------------------------
    The same cryptographic capabilities discussed here today enabled 
secure, auditable humanitarian aid to 60,000 health care workers in 
Venezuela under a repressive regime, accomplishing a major foreign aid 
objective tied to a White House national security emergency. \3\ The 
best way to send Office of Foreign Assets Control (OFAC)-authorized aid 
that would not be intercepted by the Venezuelan regime was to do it 
outside of their domestic banking system, through USDC cryptocurrency, 
and using Virtual Private Networks (VPNs). \4\ No doubt the Venezuelan 
regime considered the use of those previously frozen assets ``illicit 
finance,'' but to us they were cryptographically secure humanitarian 
aid. \5\
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     \3\ https://www.circle.com/blog/circle-partners-with-bolivarian-
republic-of-venezuela-and-airtm-to-deliver-aid-to-venezuelans-using-
usdc
     \4\ https://www.ft.com/content/2a271032-35b4-4969-a4bf-
488d4e9e3d18
     \5\ https://www.ft.com/content/2a271032-35b4-4969-a4bf-
488d4e9e3d18
---------------------------------------------------------------------------
    Likewise, in the past few weeks, tens of millions of dollars worth 
of cryptocurrency were donated by the public to Ukraine--faster and 
more aid than the U.N. provided. Further, the transparency of 
Government-identified wallets on a public ledger is a substantial 
improvement in accountability from U.N. aid through traditional 
banking, like the U.N. Oil-for-Food scandal. \6\ Streaming in 24/7, 
with no limited banking hours; with fewer intermediaries to be 
disrupted or take fees off the top; and available with a mere phone 
app. No doubt, the Russian Government considers that money ``illicit'' 
and would stop it if they could. Resilient money is part of a duality 
of sovereignty that, like most things, can be considered good and bad.
---------------------------------------------------------------------------
     \6\ https://www.law.nyu.edu/news/IILJ-IRAQ-OILFOOD
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    For policymakers, the key is to find a balance that doesn't merely 
chase bad actors but also prevents exploitation of the vulnerable from 
the start. Having spent decades with victims of crime, I can say: you 
will never make them whole. Even if you get some of the money back--and 
rarely will you get it all back--you will never undo the trauma of 
being violated, exploited, and having your vulnerability exposed so 
concretely. We must empower people to protect themselves from 
exploitation, not just avenge the victims. Cryptocurrencies, like the 
cryptography with which they are built, can be used in crime, but we'd 
be naive to think they are not also powerful tools to empower and 
protect the innocent.
    Related to democracy and threat prevention, while briefly serving 
as Counselor to the current Treasury Deputy Secretary, my portfolio was 
cybersecurity and emergent technology in the wake of the SolarWinds 
cyberattack. The Russian Foreign Intelligence Service spent months 
inside computers across the private sector and Government agencies. It 
confirmed \7\ what we had been saying for years: that cybercrime is not 
just about the money. Over-attributing cybercrime to cryptocurrency 
misses significant operating models and preventive measures that can be 
taken.
---------------------------------------------------------------------------
     \7\ https://www.gao.gov/blog/solarwinds-cyberattack-demands-
significant-federal-and-private-sector-response-infographic
---------------------------------------------------------------------------
    Having worked on cybercrime for years, including at FinCEN and the 
National Security Council, here are a few observations about ransomware 
in particular:

  1.  Ransomware dates back to 1989, two decades prior to the emergence 
        of Bitcoin in 2009. Payments have come in a variety of fiat 
        ``digital'' methods such as online payment processors, credit 
        cards, and other traditional money transmission services for 
        decades.

  2.  Yes, cryptocurrency has become the recent payment of choice 
        because of the speed and its perceived anonymity. However, 
        payments made in cryptocurrency offer Law Enforcement 
        significant visibility and investigative benefits over opaque 
        banking, as we saw with the recovery of $2.3 million in 
        cryptocurrency from the Colonial Pipeline attackers. There are 
        many other examples of cases being solved much faster because 
        cryptocurrency was involved, cases where we could immediately 
        identify on a public ledger which Virtual Asset Service 
        Provider (VASP) to subpoena using immutable public evidence 
        rather than years of Mutual Legal Assistance Treaty (MLAT) 
        process and guesswork about which bank might be involved due to 
        opaque wire transfers and shell companies.

  3.  The increase in ransomware payments has less to do with criminals 
        reflecting current financial trends, and more to do with three 
        practical emergences:

    a.  First, the advent of Ransomware-as-a-Service, making kits 
        widely available, regardless of coding skills, drastically 
        reducing barriers to entry;

    b.  Second, the use of double extortion, greatly increasing payouts 
        by also threatening to expose stolen data, not just lock the 
        computer; and

    c.  Third, wide adoption of cyber insurance, which, while good in 
        itself, also means ransomware actors know victims have ability 
        to pay, driving up demands and payouts.

    In light of these three substantial factors, it greatly 
oversimplifies the issue to blame ``cryptocurrency'' for payments 
increasing. Ignoring the variety of factors at play, this claim fails 
to recognize that part of the solution is having cyber insurance 
policies require that the policyholder develop and maintain meaningful 
cybersecurity practices as one of the best ways to help reduce 
payments--and, importantly, reduce victims from the beginning. A 
ransomware attack avoided is a bigger victory than a perpetrator 
apprehended. We make decisions everyday about balancing risk and 
opportunity to thrive. The best defense against cybercrime is 
disconnecting computers. But we have decided that it's better to manage 
risk rather than stop communicating, creating, and transacting across 
the world seamlessly. Likewise, we decided as a Nation that although 
encryption itself makes it more difficult for the Government in some 
instances to monitor activity, that security also protects people from 
hackers and protects human rights actors from autocrats so they can 
promote democratic discourse. As Sen. Wyden has said, ``Secure, 
encrypted communications give people the power to organize and access 
information that authoritarian regimes don't want seen. End-to-end 
encryption is life or death for people living in authoritarian 
countries like Russia, China, or Saudi Arabia.'' \8\ The democratic 
resilience of cryptography doesn't stop with mere messages.
---------------------------------------------------------------------------
     \8\ https://twitter.com/RonWyden/status/
1499384550165725190?s=20&t=1UzXFuPo-X4czlgMBVYSg
---------------------------------------------------------------------------
    If we chronically underestimate what cryptocurrencies can do for 
democracy, we also grossly overestimate its use in crime. For 
perspective, ``Chainalysis's 2022 Crypto Crime Report'' estimated 
crypto-illicit finance at $14 billion, about 0.15 percent of all 
transaction volume in 2021. \9\ The UNODC estimates fiat illicit 
finance between $800 billion--$2 trillion, or 2-5 percent of global 
GDP--that fiat illicit percentage is up to 33 times higher than 
crypto's percentage. \10\ For scale, crypto's 2021 illicit finance 
number of $14 billion is comparable to the $12.4 billion lost by bank 
customers through overdraft fees alone in 2020. \11\ Apples to oranges 
perhaps, but meaningful context in terms of scale of impact on 
consumers. Note, it is impossible to have an overdraft with crypto, 
because there is no double-spending. That alone is $12.4 billion back 
to some of the most economically vulnerable people. Not to mention 
mandatory account minimums that have kept roughly 3.5 million U.S. 
households unbanked, which crypto does not have. \12\
---------------------------------------------------------------------------
     \9\ https://blog.chainalysis.com/reports/2022-crypto-crime-report-
introduction/
     \10\ https://www.unodc.org/unodc/en/money-laundering/overview.html
     \11\ https://www.forbes.com/advisor/personal-finance/how-to-
prevent-overdraft-fees/
     \12\ https://twitter.com/-amanda-fab/status/
1479629264194572291?s=21
---------------------------------------------------------------------------
    There is work to be done yet for cryptocurrency. There are too many 
exploits, rugpulls and scams. The early internet had a lot of fraud and 
exploits as well. You'd order something online and have no idea whether 
you'd actually get it. It took years to work out consumer protections, 
and certainly data privacy and protection remains elusive to this day. 
But we haven't decided to shut down the internet. We work persistently 
to find the balance and prioritize risks. As an example of the wisdom 
in fully exploring positive uses for edge technology before 
preemptively overreacting, the U.K. previously talked of banning The 
Onion Router, or Tor, browser, which was originally designed by the 
U.S. Naval Research Laboratory and provides multilevel encrypted access 
to the internet. \13\ Now the BBC is broadcasting via Tor in Russian 
and Ukrainian to bring the free flow of information to where BBC 
signals have been blocked. \14\
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     \13\ https://www.bbc.com/news/technology-50150981
     \14\ https://www.bbc.com/news/technology-50150981
---------------------------------------------------------------------------
    And how should we prioritize risks in the context of the Russian 
invasion? A senior Administration official said on background call to 
the Digital Assets Executive order: ``I will say, on Russia, in 
particular, the use of cryptocurrency we do not think is a viable 
workaround to the set of financial sanctions we've imposed across the 
entire Russian economy and, in particular, to its central bank.'' 
Similarly, my successor as Counselor to the Deputy Secretary \15\ 
recently said, ``You can't flip a switch overnight and run a G20 
economy on cryptocurrency. It's an access problem, it's a rails 
problem, and it's just a basic liquidity problem. Certainly there's 
going to be an element [of crypto] that's part of their playbook, but 
it frankly isn't at the top of the list.'' \16\
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     \15\ https://www.whitehouse.gov/briefing-room/press-briefings/
2022/03/09/background-press-call-by-senior-administration-officials-on-
the-presidents-new-digital-assets-executive-order/
     \16\ https://twitter.com/aredbord/status/1500116597607915527?s=21
---------------------------------------------------------------------------
Three Recommendations
    If you want to tangibly impact illicit finance, here are three 
concrete actions you can take now:

  1.  First, pass the budget that was due last October. Fifteen months 
        after the passage of landmark AML modernization legislation, 
        none of the tens of millions of dollars needed to implement it 
        has been appropriated. Under a Continuing Resolution, FinCEN 
        and OFAC are without the roughly $74 million increase for 
        personnel and technology, while more and more are demanded of 
        them. \17\ Empower FinCEN to use the data already coming to 
        them before burdening them--and industry--with additional data 
        collection for which they will be asked what good use they made 
        of it. They are being set up for failure by unfunded mandates.
---------------------------------------------------------------------------
     \17\ https://financialservices.house.gov/news/
documentsingle.aspx?DocumentID=407592
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  2.  Second, resource and expansively clarify the AML and Kleptocracy 
        whistleblower programs. The AML Whistleblower Program should 
        explicitly include sanctions evasion and any violation of money 
        laundering laws in 18 U.S.C. 1956, not just BSA violations, so 
        that everyone is clear to crowd-source leads related to 
        corruption and abuse, and that it is ``administrative'' 
        forfeiture amounts that are excluded from awards. Also, provide 
        the separate Kleptocracy Whistleblower Program with dedicated 
        funds and much higher caps, for the people risking their lives 
        under autocratic regimes. Not resourcing whistleblower programs 
        is doubly bad because it sets them up for failure, which 
        undermines the whole system of people who want to help--from 
        whistleblowers to overburdened public servants.
  3.  Third, reduce global regulatory arbitrage. According to 
        Chainalysis, crypto- money-laundering activity is ``heavily 
        concentrated . . . at a surprisingly small group of services,'' 
        which we know to be foreign, high-risk, centralized exchanges. 
        \18\ With limited resources, we must prioritize. Help the 
        diligent U.S. exchanges working hard to do things right. 
        Further, until there are global registration standards to 
        identify trusted exchanges to send personal information, 
        industry cannot implement the Travel Rule. Congress should 
        press U.S. FATF representatives to focus on standardized 
        licensing across jurisdictions, instead of FATF developing new, 
        expansive definitions of ``Virtual Asset Service Provider'' 
        that include software developers in a way that FinCEN cannot 
        implement under our Constitution.
---------------------------------------------------------------------------
     \18\ ``2020 Chainalysis Crypto Crime Report'', p.10.

    In closing, thank you again for this opportunity. Conversation is 
the fastest and most democratic way to ensure we are not 
underestimating or overestimating nuanced risks and opportunities. That 
is also the value of robust Notice and Comment periods for rulemakings, 
for which I argued strenuously with Secretary Mnuchin around the rushed 
wallets rulemaking that I opposed. We cannot claim to know more than 
all of the public. That is not how we best protect and empower. Your 
invitation shows dedication to discourse, and I am so grateful.
    Our President issued an Executive order last week that lays out an 
ambitious and thoughtful approach to empowering innovation to increase 
the innovative resilience and economic strength of our country--clear 
national security goals. All I ask is that you give our Nation and 
President that chance to complete the studies so that we are clear on 
opportunities and real risks before rushing ahead of the smart and 
dedicated public servants working hard for years to protect and empower 
our country's and the world's democratic values. We compete with China 
and Russia through the power of ideals and democratic freedom that show 
the world what is possible such that they want to join us. Democratic 
discourse and personal sovereignty are foundational to our country. 
And, as we see in the unified solidarity with Ukraine, principles are a 
key national security defense in the global battlefield of ideas and 
ideals.
    I will end with a quote engraved at the National Memorial for Peace 
and Justice, informally known as the National Lynching Memorial, to 
remind us that personal sovereignty requires vigilance, and that we 
always need a dynamic tension of personal empowerment in relation to 
the potential for politically sanctioned injustice, which is hardly far 
in our rearview mirror. Thinking also, in his own personal, local way, 
of my grandfather, who as justice of the peace got up everyday knowing 
that justice is a constant struggle for many. And of course thinking of 
so many people around the world living this right now, and our 
obligation to do better:
        For the hanged and beaten.
        For the shot, drowned, and burned.
        For the tortured, tormented, and terrorized.
        For those abandoned by the rule of law.
        We will remember.
        With hope because hopelessness is the enemy of justice.
        With courage because peace requires bravery.
        With persistence because justice is a constant struggle.
        With faith because we shall overcome. \19\
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     \19\ https://ideas.ted.com/this-is-sacred-ground-a-visit-to-the-
lynching-memorial-in-alabama/
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    Thank you.
                                 ______
                                 
                PREPARED STATEMENT OF MICHAEL CHOBANIAN
   Founder of KUNA Exchange, President of Blockchain Association of 
                                Ukraine
                             March 17, 2022
    My name is Michael Chobanian, and I am a Ukrainian fintech 
entrepreneur and crypto enthusiast. In 2014, I founded KUNA--Eastern 
Europe's first Bitcoin agency which has since transformed into a full-
fledged cryptocurrency exchange with more than 450,000 users worldwide.
    On February 24th, the Russian Federation attacked my homeland with 
a full-scale war. Thousands of civilians have been killed and hundreds 
of homes have been destroyed. By the Ministry of Finance's accounts, 
the damage from the Russian invasion has already amounted to $500 
billion dollars--and the number rises daily.
    From the invasion's first moment, we at KUNA decided to act swiftly 
to help our army and the people who suffered most due to these horrific 
events. In collaboration with the Ministry of Digital Transformation 
and the Ministry of Defense, our team launched the official Crypto Fund 
of Ukraine to solicit cryptocurrency donations. The majority of funding 
comes through crypto assets such as Bitcoin and Ethereum, where AML 
technologies (e.g., Chainalysis, Crystal Blockchain) have been 
successfully implemented. All crypto that we received and converted was 
analyzed for illegal activity. These solicited funds are used to 
purchase much needed medical supplies, military equipment, and 
humanitarian aid here in Ukraine.
    As of today, the Fund has collected more than $50 million dollars 
in donations, while shooting for a $100 million dollar goal.
    One of our top priorities throughout this fundraise was to ensure 
the transparency of the donation process. While KUNA is providing the 
technological platform for crypto donations, the Ukrainian Government--
specifically, the Ministries of Digital Transformation and Defense have 
ultimate control of the funds and it is they who are responsible for 
the fund's distribution. KUNA is serving a strictly technical and 
organizational role in the fundraising process and coin management--
crypto banking.
    I would also like to address the sanctions many crypto platforms 
are currently imposing on Russia-based crypto accounts. Being the 
founder of a crypto exchange and a Ukrainian patriot, I have decided to 
cease all support for the Russian ruble on KUNA. Although it wasn't an 
easy decision, I believe it was the right one. We can't support Russia 
while Ukrainian people are being killed and cities are being bombed and 
attacked by ballistic missiles. Many crypto platforms adopted similar 
initiatives such as blocking the accounts of sanctioned Russian 
officials and businessmen who support Putin's regime.
    I am sure that you will do everything possible to protect Ukraine, 
Europe, and the entire democratic world from bloody authoritarian 
Russian aggression. To stop Russia in its tracks, and to bring about a 
more democratic world with personal freedom through cryptocurrency, we 
appeal to crypto exchanges worldwide, including Binance, to block any 
interaction with sanctioned individuals until the fall of Putin's 
regime and end of aggression against Ukraine.
    Nevertheless, crypto remains a viable option for Russians who 
oppose the war and wish to stand up against Putin's regime. The ruble 
has already reached historical lows and keeps falling, while Russia's 
GDP has lost $30 billion, or 9 percent, in 2022. Many civilians 
justifiably fear the seizure of retail deposits and want to protect 
their capital. Purchasing digital assets is an effective means by which 
ordinary Russian citizens can demonstrate their opposition to Putin's 
regime by moving their savings out of the financial system of the 
Russian ruble.
    By concluding, I would like to thank the U.S. Senate for the 
opportunity to stand here and speak on these vital issues. Our Nation 
is eternally grateful for all the help given by our international 
friends and partners. I truly believe that the unprecedented global 
unity and support for Ukraine during this unmerited, unwanted, and 
unnecessary bloodshed can put and end to Putin's reign of terror and 
lead to an even brighter future for tomorrow.
    Slava Ukraine!
                                 ______
                                 
                 PREPARED STATEMENT OF SHANE STANSBURY
 Robinson Everett Distinguished Fellow in the Center for Law, Ethics, 
  and National Security, and Senior Lecturing Fellow, Duke University 
                             School of Law
                             March 17, 2022
    Chairman Brown, Ranking Member Toomey, and distinguished Members of 
the Committee, thank you for the opportunity to testify today.
    I am a Senior Lecturing Fellow in Law and the Robinson Everett 
Distinguished Fellow in the Center on Law, Ethics, and National 
Security at Duke University School of Law. At Duke, I teach primarily 
in the areas of cybercrime and national security law.
    I previously spent more than 8 years as a Federal prosecutor in the 
U.S. Attorney's Office for the Southern District of New York (SDNY). At 
SDNY, I spent much of my time investigating and prosecuting 
transnational crimes, including terrorism, cybercrime, international 
narcotics trafficking, money laundering, international public 
corruption, and global weapons trafficking. I also served as a 
representative in the Department of Justice's (DOJ) National Security 
Cyber Specialists Network.
    Although my testimony is based on my experience as a prosecutor and 
my current academic work, I am testifying today on my own behalf. No 
organization has paid for or approved this testimony.
Introduction
    Criminals have always sought to take advantage of new forms of 
technology to facilitate their illegal activity. Over the last two 
decades, the pace at which they have done so has increased dramatically 
as the internet, social media, smartphones, and other innovations have 
changed the way we communicate and do business. I witnessed these rapid 
changes firsthand as a Federal prosecutor focused on terrorism, 
international narcotics trafficking, and other transnational crimes.
    For example, my colleagues and I saw new digital communication 
methods revolutionize the way terrorist organizations recruit members, 
spread propaganda, and carry out operations. An early example was the 
launching in 2010 by al Qaeda in the Arabian Peninsula (AQAP) of a 
digital English-language magazine that could be easily distributed 
around the world through social media channels. Not long after that, we 
saw the Islamic State of Iraq and al Sham (ISIS) take that strategy to 
another level. The group expanded its reach by exploiting a variety of 
platforms, including social media networks such as Twitter and Facebook 
and encrypted messaging apps like Telegram. These technologies allowed 
the group to reach individuals around the world at a speed and scale 
previously unthinkable--sometimes to devastating effect. Of course, 
these new technologies did not just benefit terrorists. Drug 
traffickers and criminals of all types were quick to adopt social 
media, encrypted messaging apps, and other tools to better communicate 
with one another and carry out their illicit operations.
    In the same way these technologies revolutionized the way 
terrorists and criminals communicate, cryptocurrency has provided new 
avenues for how they finance illegal activities. I will describe some 
of those avenues in a moment. But it is worth noting at the outset that 
in its current form cryptocurrency presents challenges that are in some 
ways distinct from technologies previously adopted by bad actors. 
Because of their principal features, cryptocurrencies can often act as 
magnets for criminal activity. They are decentralized, borderless, and 
most provide a high degree of anonymity. Add to these features other 
advantages--such as convenient access, storage, and transfer--and it is 
not hard to see why many criminals are attracted to cryptocurrency.
How Criminals Use Cryptocurrency To Facilitate Criminal Activity
    As DOJ has explained, criminals can exploit cryptocurrency in 
several different ways, including (1) using cryptocurrency to 
facilitate the commission of crimes, or to support terrorist activity; 
(2) using cryptocurrency to illegally hide financial activity, such as 
through money laundering or sanctions evasion; and (3) committing 
crimes within the cryptocurrency market itself. \1\ I will highlight a 
few examples of each of these types of activities.
---------------------------------------------------------------------------
     \1\ U.S. Dep't of Justice, ``Report of the Attorney General's 
Cyber Digital Task Force: Cryptocurrency Enforcement Framework'' (Oct. 
2020), at 5-6, available at: https://www.justice.gov/archives/ag/page/
file/1326061/download.
---------------------------------------------------------------------------
    The most obvious way cryptocurrency has changed the criminal 
landscape is simply by making some crimes easier to commit and harder 
to detect. By avoiding or minimizing cash transactions or bank 
transfers, criminals can seek to accomplish more easily one of their 
chief objectives--not getting caught.
    My colleagues at SDNY saw this phenomenon firsthand in the early 
days of Bitcoin's adoption, when they were investigating the now 
infamous Silk Road website, which allowed users to buy and sell illegal 
drugs and other unlawful goods and services anonymously and beyond the 
reach of law enforcement. Bitcoin was the established currency on Silk 
Road, and it served as the perfect vehicle for anonymous, illegal 
transfers. With criminals free to buy, sell, and trade without ever 
having to exchange cash or deposit money in a mainstream account, the 
website flourished. At the time of its seizure in 2013, Silk Road was 
considered the most sophisticated criminal marketplace on the internet, 
having been used by several thousand drug dealers to distribute 
hundreds of kilograms of illegal drugs. \2\
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     \2\ ``Manhattan U.S. Attorney Announces the Indictment of Ross 
Ulbricht, the Creator and Owner of the `Silk Road' Website'', U.S. 
Dep't of Justice (Feb. 4, 2014), available at: https://www.justice.gov/
usao-sdny/pr/manhattan-usattorney-announces-indictment-ross-ulbricht-
creator-and-owner-silk-road.
---------------------------------------------------------------------------
    Since that time, cryptocurrency has grown even more popular--and 
unfortunately so has its use in criminal conduct. Cryptocurrency is now 
used in connection with a broad array of illicit activity, ranging from 
child exploitation and human trafficking to extortion and fraud. \3\ 
According to one estimate, illegal cryptocurrency transactions reached 
a record total of more than $14 billion in 2021. \4\ There are also 
signs that terrorists may be turning to cryptocurrency to finance their 
operations. In August 2020, DOJ seized millions of dollars as part of a 
wide-scale seizure of cryptocurrency tied to the al Qassam Brigades 
(Hamas's military wing), al Qaeda, and ISIS. \5\
---------------------------------------------------------------------------
     \3\ DOJ Cryptocurrency Enforcement Framework, supra n. 1, at 6-7. 
See also U.S. Gov't Accountability Off., GAO-22-105462, ``Virtual 
Currencies: Additional Information Could Improve Federal Agency Efforts 
To Counter Human and Drug Trafficking'', (Dec. 2021), available at: 
https://www.gao.gov/assets/gao-22-105462.pdf.
     \4\ Chainalysis, ``The 2022 Crypto Crime Report'' (Feb. 2022), at 
3, available for download at: https://go.chainalysis.com/2022-Crypto-
Crime-Report.html.
     \5\ ``Global Disruption of Three Terror Finance Cyber-Enabled 
Campaigns'', U.S. Dept. of Justice (Aug. 13, 2020), available at: 
https://www.justice.gov/opa/pr/global-disruption-three-terror-finance-
cyber-enabled-campaigns.
---------------------------------------------------------------------------
    Perhaps nowhere is cryptocurrency's role in criminal activity more 
vivid than in ransomware attacks. \6\ As many are aware, ransomware is 
not just a growing problem for U.S. businesses, \7\ but also a serious 
threat to public safety and national security. The hack of Colonial 
Pipeline in 2021 was perhaps the most visible reminder of this fact, 
but it did not stand alone. In 2021, U.S. agencies observed incidents 
involving ransomware against 14 of the 16 U.S. critical infrastructure 
sectors. \8\ Thousands of hospitals, school districts, city 
governments, and other institutions in the U.S. have been impacted in 
recent years by this modern-day hostage scheme.
---------------------------------------------------------------------------
     \6\ See, e.g., Erik Schatzker, ``FBI Calls Crypto `Only Game in 
Town' as Ransomware Flourishes'', Bloomberg.com (Feb. 16, 2022), 
available at: https://www.bloomberg.com/news/articles/2022-02-16/fbi-
calls-crypto-only-game-intown-as-ramsonware-flourishes.
     \7\ U.S. Dep't of the Treasury, Fin. Crimes Enf't Network, 
Financial Trend Analysis: ``Ransomware Trends in Bank Secrecy Act Data 
Between January 2021-June 2021'' (Oct. 15, 2021), at 1 (describing 
ransomware as ``an increasing threat to the U.S. financial sector, 
businesses, and the public''), available at: https://www.fincen.gov/
sites/default/files/2021-10/Financial%20Trend%20Analysis-
Ransomware%20508%20FINAL.pdf.
     \8\ Cybersecurity & Infrastructure Security Agency, Alert (AA22-
040A): ``2021 Trends Show Increased Globalized Threat of Ransomware'', 
(Feb. 9, 2022), available at: https://www.cisa.gov/uscert/ncas/alerts/
aa22-040a.
---------------------------------------------------------------------------
    Cryptocurrency's primary appeal for ransomware criminals is the 
same as for other cybercriminals: obscurity. Indeed, cryptocurrency's 
central features make it particularly well-suited to the model of 
ransomware that has emerged in recent years. Under the so-called 
``Ransomware-as-a-Service'' (RaaS) model, a developer typically 
licenses ransomware tools to affiliates, sometimes in exchange for a 
share of ransomware payments. \9\ As is the case with other types of 
illicit monetary transfers, payments in ransomware attacks often do not 
travel directly from the victim to the perpetrators, but rather through 
multiple layers involving different entities, each of which may or may 
not be part of a regulated financial market.
---------------------------------------------------------------------------
     \9\ Institute for Security and Technology, Combatting Ransomware 
(Apr. 2021), at 16-17, available at: https://securityandtechnology.org/
wp-content/uploads/2021/09/IST-Ransomware-Task-Force-Report.pdf.
---------------------------------------------------------------------------
    The cryptocurrency market offers multiple opportunities for 
obfuscation along the path from payor to payee. One well-known 
technique is the use of ``mixing'' or ``tumbling'' services, which 
allow for the commingling of legitimate cryptocurrency transmissions 
with those involving illicit payments, thereby making the criminal 
activity harder to trace. \10\
---------------------------------------------------------------------------
     \10\ See, e.g., ``DOJ Cryptocurrency Enforcement Framework'', 
supra n. 1, at 41-44.
---------------------------------------------------------------------------
    Another established method is ``chain hopping,'' whereby criminals 
move illicit transmissions from one cryptocurrency to another using 
some form of cryptocurrency exchange. By using this method, criminals 
shift their digital trail from one cryptocurrency's blockchain to 
another cryptocurrency's blockchain, again making the illicit assets 
much harder to trace. \11\
---------------------------------------------------------------------------
     \11\ See, e.g., id.
---------------------------------------------------------------------------
    A final example is the use of a so-called ``privacy coin,'' such as 
Monero, to obfuscate illicit transactions. Unlike a cryptocurrency like 
Bitcoin, which relies on a public blockchain and reveals some 
information about the transaction itself (albeit not specific 
identifying information about the participants), a privacy coin 
generally adds another layer of anonymity by obscuring virtually all 
details of the transaction. \12\
---------------------------------------------------------------------------
     \12\ See, e.g., id. at 4, 41.
---------------------------------------------------------------------------
    These and other obfuscation methods make cryptocurrency attractive 
not only for the actual execution of crimes like ransomware, but also 
for money laundering and other efforts to conceal and promote criminal 
conduct. That criminals would adopt this new tool is not surprising. As 
a prosecutor, I regularly witnessed drug traffickers and corrupt 
officials look for innovative methods to avoid the scrutiny of U.S. 
financial authorities, particularly when they were trying to move money 
across borders.
    But some of cryptocurrency's features--such as decentralized 
operation and control, and opportunities for anonymity--make it 
particularly enticing as a money laundering instrument. Criminals 
seeking to move illicit funds across borders can avoid risky 
intermediaries; they may have a network of options available at the 
click of a button. Their work is made easier by actors who expressly 
build technologies to reduce or avoid regulatory compliance. Indeed, as 
cryptocurrencies become more common and accepted, criminals could 
choose to keep their profits in cryptocurrency for use in other illicit 
activities.
    Finally, cryptocurrency itself can create entirely new avenues for 
criminal activity. As DOJ has noted, because of cryptocurrency's 
features and the fact that much of its market is characterized by 
opaqueness, wallets and exchanges can become attractive targets for 
theft and fraud. \13\ By one estimate, last year criminals stole 
approximately $3.2 billion worth of cryptocurrency and earned more than 
$7.8 billion from cryptocurrency-related scams. \14\ As cryptocurrency 
grows in popularity, these crimes could increasingly harm the general 
public and less sophisticated investors. And the threat is not just 
from ordinary criminals. Rogue Nation States have turned to 
cryptocurrency theft and other crimes to finance their regimes, as 
witnessed by North Korea's reported theft of hundreds of millions of 
dollars in cryptocurrency. \15\
---------------------------------------------------------------------------
     \13\ See, id. at 15-16.
     \14\ ``Chainalysis 2022 Crypto Crime Report'', supra n. 4, at 5-6.
     \15\ Kevin Collier, ``North Korea Stole a Record $400 Million in 
Cryptocurrency Last Year, Researchers Say'', NBC News (Jan. 13, 2022), 
available at: https://www.nbcnews.com/tech/security/north-korea-stole-
record-400-million-cryptocurrency-last-year-research-rcna12080. See 
also DOJ Cryptocurrency Enforcement Framework, supra n. 1, at 1, 16 
(describing the threats posed by North Korea, including through illicit 
mining of cryptocurrency).
---------------------------------------------------------------------------
The Challenges Cryptocurrency Presents for Law Enforcement
    The same factors that make cryptocurrency attractive to criminals 
can present challenges for prosecutors and law enforcement agents 
seeking to stop illicit activity.
    As I mentioned previously, criminal actors are always looking for 
new ways to commit crimes or hide their illicit proceeds. Some find 
particularly clever methods for covering their tracks, and it is the 
job of investigators and prosecutors to use the tools at their disposal 
to find and assemble the pieces of the evidentiary puzzle.
    When my colleagues and I investigated international money 
laundering cases, dedicated investigators spent countless hours 
analyzing records requested from financial entities to establish the 
use of shell companies, phony accounts, and other means to conceal the 
transfer and ownership of illicit funds. We were often successful 
because of the cooperation of international partners and because of the 
financial information made available by regulated institutions that 
followed their compliance and disclosure obligations. But much of the 
cryptocurrency ecosystem operates outside of the universe of resources 
that prosecutors and investigators routinely rely upon to gather the 
information they need to establish criminal malfeasance.
    To be sure, law enforcement is getting much better at tracing 
digital assets used to commit and cover up criminal activity. With 
forensic blockchain analysis and access to other helpful information, 
like know-your-customer (KYC) information provided by regulated 
entities, law enforcement can penetrate the otherwise opaque world of 
illicit cryptocurrency transfers. Last year, we witnessed DOJ recover a 
substantial portion of the $4.4 million in ransomware payments made in 
connection with the Colonial Pipeline attack discussed previously. \16\ 
And just last month, DOJ recorded its largest financial seizure ever 
when it recovered $3.6 billion in cryptocurrency allegedly related to 
the 2016 hack of the virtual currency exchange Bitfinex. \17\ These are 
indeed promising and welcome developments.
---------------------------------------------------------------------------
     \16\ ``Department of Justice Seizes $2.3 Million in Cryptocurrency 
Paid to the Ransomware Extortionists Darkside'', U.S. Dep't of Justice 
(Jun. 7, 2021), available at: https://www.justice.gov/opa/pr/
department-justice-seizes-23-million-cryptocurrency-paid-ransomware-
extortionists-darkside.
     \17\ ``Two Arrested for Alleged Conspiracy To Launder $4.5 Billion 
in Stolen Cryptocurrency'', U.S. Dep't of Justice (Feb. 8, 2022), 
available at: https://www.justice.gov/opa/pr/two-arrested-alleged-
conspiracy-launder-45-billion-stolen-cryptocurrency. It should be noted 
that this case is pending and the criminal charges remain allegations.
---------------------------------------------------------------------------
    It would be somewhat naive, however, to conclude from these 
developments that tracing and recovering cryptocurrency assets is 
always easy--or even always possible. Even with the latest blockchain 
analytics, investigations can take years to complete. Frequently, the 
hardest part of a cyber-related prosecution is demonstrating what 
investigators sometimes refer to as ``hands on the keyboard.'' Digital 
breadcrumbs left by criminals can prove invaluable to investigators. 
But ultimately prosecutors must demonstrate that an identifiable person 
is behind the criminal activity. And in a criminal case, that identity 
must be established beyond a reasonable doubt. That is, of course, as 
it should be, but in cryptocurrency-related cases prosecutors will 
often have the distinctive challenge of relying on a very complex 
series of digital patterns and transactions to meet their burden.
    That crucial connection of a criminal's identity to their criminal 
conduct is one of the main challenges posed by cryptocurrency. A public 
blockchain can be helpful, but often it can get one only so far. 
Prosecutors can spend years trying to penetrate the layers of 
obfuscation by savvy criminals. Even if they succeed, they may still 
face obstacles due to the current state of the cryptocurrency market.
    Criminal investigations are only as successful as the information 
available. Sometimes prosecutors and investigators will get the 
information they need. For example, if a cryptocurrency exchange used 
by a criminal is complying with KYC and other regulatory requirements, 
that may provide the information needed for learning the criminal's 
identity or developing other leads. But too often this is not the case. 
Not all cryptocurrency platforms comply with existing regulations, and 
many operate in jurisdictions with less stringent requirements or 
beyond the reach of relevant treaties.
    This information gap could grow wider if more cryptocurrency 
platforms move to a decentralized model or if more anonymous 
instruments such as privacy coins gain wider adoption. This is a 
remarkable period for technological innovation. Blockchain technology 
offers fascinating possibilities for the future, and I look forward to 
seeing how it might be applied to enrich our society. But we should 
also recognize the serious role that cryptocurrency is playing in 
criminal activity. Only then can we take the steps necessary to protect 
our health, our safety, and our national security.
        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                      FROM JONATHAN LEVIN

Q.1. In your oral testimony, you noted that, with respect to 
the use of digital assets in illicit finance, there is a 
distinction between ``the ability to see the money versus seize 
the money.'' You also noted that even when there is ``100 
percent degree of transparency about where the money was 
actually going,'' the ``operation . . . to recover the funds
is not always 100 percent possible.''
    Please discuss the challenges involved in seizing or 
recovering digital assets that are identified as illicit.

A.1. With traditional finance, if you find the funds, they are 
either in tangible cash/assets you can seize or are held by a 
centralized third-party financial institution who in many cases 
you can require to hand over control of the assets through 
appropriate legal process. This is not always the case in the 
decentralized world of digital assets.
    Law enforcement seizures of digital assets are generally 
the result of three possible scenarios. The first involves 
quality investigative work that leads law enforcement to 
finding the information they need--such as a criminal's private 
keys or recovery seeds--to seize their ill-gotten gains from 
their private wallet. The second involves serving legal 
process, such as a seizure warrant, on a service or financial 
institution where the funds may be located--like a digital 
asset exchange--that has custody of a criminal's illicit funds. 
And the third involves the criminal, coconspirators, or 
accomplices agreeing to turn over the funds, usually as a form 
of cooperation.
    Save for these scenarios, it can be quite difficult to 
seize and recover funds. This means if you track the funds and 
they are in a private wallet, exercising control over those 
funds to recover them requires you to obtain the access 
credentials for the private wallet yourself.
    In spite of these challenges, we have seen law enforcement 
demonstrate success in this regard, leading to significant 
asset seizures, such as the recent DOJ seizure of $3.6 billion 
in stolen digital assets directly linked to the 2016 hack of 
Bitfinex, a digital asset exchange. There will be some cases in 
which illicit wallets may have been identified, but do not 
produce immediately actionable results.
    There are two scenarios we outline below: challenges in 
seizing funds held in private, or noncustodial wallets, and 
challenges in seizing funds held by digital asset exchanges.

Seizing Funds Held in Private Wallets

    If digital assets are held in a private wallet controlled 
by private keys known only by the owner of that wallet, there 
is generally no third party (such as a bank or financial 
institution like in traditional finance) that you can require 
to provide control of those funds/assets to you. This is true 
even if you know where the funds are located (e.g., digital 
asset wallet address). That said, if law enforcement obtains 
the private keys or recovery seeds for a criminal's personal 
wallet, or if they are able to obtain cooperation from them or 
their collaborators, they may be able to seize the funds.
    There are potential exceptions. For example, Tether has 
some centralized aspects to it. The Tether white paper suggests 
they can freeze and even burn Tether stored on an address and 
reissue equivalent value tokens to, say, the victim of stolen 
funds or seizing Government agency.
    If you can't access the private wallet to move the funds, 
regardless of being able to see them or knowing where those 
funds are stored (in which addresses) you have no way to exert 
control over them to seize them. It is, however, possible to 
``watch'' these wallets using blockchain analysis tools to see 
if they move in the future. Eventually criminals will want 
access to their funds and will need to move them to an off 
ramp, such as a digital asset exchange. The November 2020 
seizure of $1 billion of bitcoin seized in relation to the Silk 
Road case is a great example of law enforcement being able to 
watch and seize funds years later.

Seizing Funds Held by Digital Asset Exchanges

    In addition, it will not always be possible to seize funds 
which have been tracked to a custodial wallet. Legal challenges 
may frustrate seizure orders from one jurisdiction from being 
exercised or executed in another jurisdiction. Some 
jurisdictions or exchange services are cooperative, and others 
are not, either because they are not yet regulated, or because 
they are noncompliant. Some digital asset exchanges have 
detailed contact information and instructions for serving legal 
process and others have limited contact information, are 
nonresponsive, or may be engaged or controlled by an illicit 
service. These enforcement issues are not unique to digital 
assets as similar challenges exist with traditional finance. 
However, they can be amplified given the decentralized and 
cross-border nature of some of these services which may or may 
not be registered in the jurisdictions in which they operate.

Q.2. Approximately how frequently is law enforcement able to 
convert the identifications of illicit wallets into successful 
investigations? In other words, please discuss your 
understanding of the proportion of known illicit wallet 
addresses that are ultimately implicated in indictments or 
illicit asset seizures.

A.2. There have been a number of seizures that have been 
publicized recently, including in the Silk Road, Colonial 
Pipeline, and Bitfinex cases. While we work with a number of 
Government agencies, including law enforcement agencies, we do 
not have statistics on the number of cases involving digital 
assets they are working or what percentage of wallet addresses 
Chainalysis has identified as associated with illicit activity 
are being actively investigated, leading to indictments or 
seizures. We would defer to the Department of Justice, the 
Department of Homeland Security, the Department of Treasury, 
the U.S. Postal Inspection Service, and the many State and 
local law enforcement agencies who conduct investigations into 
the illicit use of digital assets.
    It may also be of interest that we are able to account for 
both the sum amount of cryptocurrency holdings that can be 
traced back to illicit sources, as well as the total balances 
of criminal whales, meaning criminals holding $1 million or 
more in cryptocurrency. We outline this in this blog post: 
``Criminal Whales Hold over $25 Billion in Cryptocurrency From 
Multitude of Illicit Sources'' from February 2022: https://
blog.chainalysis.com/reports/2022-crypto-crime-report-preview-
criminal-balances-criminal-whales/.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                      FROM JONATHAN LEVIN

Q.1. The Chainalysis 2022 ``Crypto Crime Report'' finds that 
``[t]ransactions involving illicit addresses represented just 
0.15 percent of cryptocurrency transaction volume in 2021 
despite the raw value of illicit transaction volume reaching 
its highest level ever.''
    Please describe the caveats and qualifications with relying 
on this statistic as an indicator of illicit finance activity 
conducted using cryptocurrency.

A.1. In our research for the ``Crypto Crime Report'', and for 
our research more broadly, we only count criminal wallets that 
we have attribution on. This means that we are missing wallets 
we don't know to be related to crime. Considering we are always 
learning about new wallets and clustering new services, our 
data improves with time. For example, at the time of writing 
last year's Crypto Crime Report, we reported 2020's illicit 
share of cryptocurrency activity to be 0.34 percent. But a year 
later, when we recalculated that metric based on additional 
intelligence, that number rose to 0.62 percent. The reason for 
the change is the identification of more addresses associated 
with illicit activity that were active in 2020.
    In addition, we don't include in our high-level estimates 
crime that is conducted off-chain, or not ``cryptocurrency 
native''. When we refer to something as ``cryptocurrency 
native'', we mean that the crime is practically dependent on 
cryptocurrency, or inherently intertwined with it. For example, 
darknet markets run entirely using cryptocurrency. It is easy 
to identify their customers and vendors by examining the flow 
of funds going into and out of those wallets. However, 
investigators sometimes encounter criminals engaged in 
traditional, non-cryptocurrency native crimes, such as 
traditional drug trafficking that occurs on the streets but 
uses cryptocurrency to pay distributors or launder illicit 
proceeds. In these cases, the funds on-ramp (likely through a 
VASP) from fiat, rather than moving from an identified illicit 
service, so it may be more difficult to determine that the 
funds are illicit proceeds. However, once investigators 
determine that someone they are investigating is using 
cryptocurrency to launder their illicit proceeds--perhaps via 
bank records they have obtained via legal process showing fund 
transfers to cryptocurrency exchanges--they can serve legal 
process to any VASPs shown on the bank records, obtain 
associated cryptocurrency addresses, and conduct blockchain 
analysis to determine how the cryptocurrency is being used.

Q.2. Please provide Chainalysis' most recent available figure 
regarding cryptocurrency transaction volume involving illicit 
addresses.

A.2. According to a calculation done on April 14, 2022, total 
illicit transaction volume for 2022 YTD is $8.69B, compared to 
$2.5T in total economic activity. This means that the illicit 
share is 0.35 percent of all transaction volume in 2022 YTD. 
This figure includes the seized funds associated with the 
Bitfinex hack, which totaled $3.65 billion. The percentage of 
all transaction volume associated with illicit wallets is 
approximately 0.2 percent without the funds associated with 
that one incident.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                      FROM MICHAEL MOSIER

Q.1. At the hearing, you discussed how a public blockchain 
ledger provides certain advantages for law enforcement with 
respect to tracing illicit transactions, as compared to cash.
    Do digital assets also provide illicit actors advantages as 
compared to cash, specifically in illicit actors' ability to 
quickly make large, cross-border transactions? What are they, 
if so?

A.1. In thinking about the advantages of digital assets over 
cash--whether for illicit or licit actors--it is helpful first 
to recognize that we have had digital versions of cash for many 
years, in the form of wire transfers, ACH, and digital payments 
through banks and money services businesses (MoneyGram, Western 
Union, Venmo, Zelle). For clarity in my response, I will refer 
to ``cryptocurrency,'' to distinguish from long-existing 
``digital payments,'' since the cryptographic security that 
allows for a public ledger is a distinguishing feature. In the 
same way that digital payments over the last several decades 
provide speed and volume advantages to carrying physical cash, 
so do recent evolutions in cryptocurrency that are based on a 
cryptographically secure, public digital ledger. Like wire 
transfers, each cryptocurrency transaction is pseudonymous, 
with cryptographically determined alphanumeric identifiers. In 
contrast to prior/existing digital payments, cryptocurrency 
transactions are on a public ledger, so can be traced nearly 
indefinitely forward and backward, whereas a traditional 
financial institution can only see a transaction as far as the 
next recipient financial institution--or less, in the instance 
of cash.
    In traditional finance and prior digital payments, 
pseudonymous wire transfer identifiers are connected to 
``identities'' that are spoofed, bought, created out of shell 
companies, or hidden behind several layers. Likewise, there are 
challenges in the cryptocurrency space with concretely 
connecting the alphanumeric identifiers of an address. However, 
it is important to note that, in contrast to the opacity of 
wire transfers that use pseudonymous identifiers within an 
interbank messaging system that is not publicly visible--and 
certainly not visible beyond the next recipient--cryptocurrency 
on the public ledger can be viewed for many, many transactions 
forward and backward. Therefore, cryptocurrency's theoretical 
benefits to illicit actors in terms of speed and volume are 
also undercut by the public visibility through blockchain 
analytics and even saavy public watchers of block explorers to 
identify activity that indicates suspicious transactions. That 
makes it very difficult to move substantial sums through 
cryptocurrency without being detected as major money movements. 
Indeed, there are multiple ``whale watchers'' in the public who 
call out significant cryptocurrency movements for public notice 
of either potential market-impacting transactions or suspicious 
activity, such as positioning for an exploit or trying to cash 
out hack proceeds at an exchange.
    The cash-out point highlights that the ability to buy real 
world goods and services with cryptocurrency remains quite 
limited. It would be difficult to pay your mortgage, tuition, 
car payments, fuel, groceries, utilities, etc., using 
cryptocurrency. Therefore, users generally need to exchange 
their cryptocurrency for fiat currency through a registered 
virtual asset service provider (VASP), which, at least in the 
United States, requires Know Your Customer (KYC) practices, 
like traditional money services businesses. Therefore, the 
identity risk level in cryptocurrency is not greater than fiat 
digital payments money services businesses transactions. In 
fact, there is much greater public transparency in 
cryptocurrency, including for VASPs to monitor transaction 
activity far beyond the next hop, compared to the opacity of 
fiat digital payments and limited visibility to one ``hop,'' 
therefore lending greater ability to assess direct and indirect 
risk in cryptocurrency.
    In addition, distinct from the opacity of fiat digital 
payments, in virtual assets, the entire public sees transfers 
on the blockchain. We have seen repeatedly that the broader 
public collectively detects suspicious activity even before the 
more limited law enforcement resources and calls out the 
activity publicly. Indeed, in multiple instances the public 
exposure and collective action has led attackers to return the 
money. That collective vigilance is not possible with opaque 
fiat digital transfers. Further, the immutable, publicly 
visible ledger for cryptocurrency provides a long term, 
reliable record that cannot be unilaterally changed. Therefore, 
for law enforcement purposes, evidence is effectively 
preserved, while investigations can continue. That provides 
more time for law enforcement to investigate before trails run 
cold. For example, in February 2022, the Department of Justice 
solved a prior cyber hacking case where approximately $4.5 
billion (in today's value) was stolen from a hacked exchange 
that occurred in 2016. \1\ The persistant visibility of the 
hacked funds on a public ledger enabled something that would be 
almost unheard of in fiat currency to solve so many years later 
with so much of it still in place, rather than largely spent, 
due to the need to off-ramp cryptocurrency but difficulty of 
doing so, when the public funds have been determined to be 
tainted. Indeed, the couple was arresting while still trying to 
cash out to fiat, 6 years later.
---------------------------------------------------------------------------
     \1\ https://guardian.ng/news/american-couple-arrested-for-planing-
to-launder-4-5-billion-stolen-bitcoin/
---------------------------------------------------------------------------
    Therefore, while there are speed advantages to 
cryptocurrency over cash--just like there have long been speed 
advantages to fiat digital payments for many years--
cryptocurrency has far more traceability, with a permanent 
trail and public visibility. In light of that, an illicit actor 
choosing pragmatically is more likely to prefer the limited 
visibility of fiat digital payments over cryptocurrency, or 
stick with the true anonymity of cash, precious metals, or 
other trade-based laundering like oil or coal. Indeed, the lack 
of transactional privacy from every public eye has been a 
limitation on the use of cryptocurrency in the business 
payments space.

Q.2. On cross-border activity, do you think a new cross-border 
rule from FinCEN would help law enforcement by providing them 
with more information to address those problems? Please 
explain.

A.2. I encourage you to contact FinCEN for the latest 
assessment of law enforcement's needs and whether reporting of 
cross-border electronic funds transfer information would be 
helpful to their efforts. Such a rule would need to be 
carefully considered, and balance the benefits to law 
enforcement with the substantial costs it would likely impose 
on both the public and on FinCEN. As you know, FinCEN is 
currently developing the beneficial ownership database required 
by the Corporate Transparency Act despite not receiving the 
promised funding from Congress, as noted in my written 
testimony, so I am hesitant to add unfunded mandates without 
their buy-in.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                     FROM MICHAEL CHOBANIAN

Q.1. During an interview on March 19 with CoinDesk TV, you 
stated that ``[t]he problem with Binance is not just that they 
still continue working on both sides, it's that they showed 
cooperation with the Russian Government before the war, and as 
far as I know, they still continue cooperating with the Russian 
Government.'' Please describe your understanding of how 
Binance, one of the largest cryptocurrency exchange in the 
world, is ``cooperating with the Russian Government.''

A.1. At the time of the publication on Coindesk, my statement 
was based on the information that I received from the 
``market''. Now we have a research by Reuters that sheds light 
on the operations of Binance in Russia. https://
www.reuters.com/technology/how-crypto-giant-binance-built-ties-
russian-fsb-linked-agency-2022-04-22/
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                      FROM SHANE STANSBURY

Q.1. As discussed at the hearing, blockchain technology can 
enable the tracing of illicit transactions to specific wallets. 
What challenges does law enforcement face in using tracing data 
to seize illicit assets or arrest illicit actors?

A.1. Even when investigators are equipped with blockchain 
tracing information, they face the challenge of linking illicit 
transactions to specific individuals or entities. That 
challenge is made more difficult in today's regulatory 
environment because part of the cryptocurrency market remains 
opaque. If a bad actor uses a cryptocurrency platform that is 
complying with know-your-customer (KYC) and other regulatory 
requirements, the information gained can help bridge the gap 
between illegal activity and a person's identity. Too often, 
however, bad actors are able to use services that do not comply 
with--or are not subject to--existing regulations and/or 
operate in jurisdictions with less stringent requirements. \1\ 
As a result, criminal conduct can go undetected by law 
enforcement, and even illicit transactions identified through 
blockchain analysis can remain unattributed. Law enforcement 
may face even greater information gaps in the future if, for 
example, more cryptocurrency services move toward a 
decentralized model not run by a single entity or if anonymity-
enhancing instruments such as so-called ``privacy coins'' gain 
wider adoption.
---------------------------------------------------------------------------
     \1\ See, e.g., Financial Action Task Force (FATF), ``Second 12-
Month Review of Revised FATF Standards--Virtual Assets and VASPs'' 
(July 5, 2021), at 2 (finding that 70 of 128 reporting jurisdictions 
had not yet implemented FATF's revised standards for virtual assets, 
and that the ``lack of regulation or the lack of enforcement of 
regulation in jurisdictions is allowing for jurisdictional arbitrage 
and the raising of [money laundering and terrorist financing] risks''), 
available for download at: https://www.fatf-gafi.org/publications/
fatfrecommendations/documents/second-12-month-review-virtual-assets-
vasps.html. See also U.S. Dep't of the Treasury, ``National Money 
Laundering Assessment'' (Feb. 2022), at 41 (observing that a ``large 
number'' of virtual asset service providers operating abroad, including 
those interfacing with the U.S. financial system, have ``substantially 
deficient'' anti-money laundering programs), available at: https://
home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-
Assessment.pdf.
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    Jurisdictional issues also can pose challenges for law 
enforcement. Cryptocurrency moves quickly and easily across 
borders, without the need for centralized intermediaries, and 
illicit assets may be hosted in wallets or accounts that are 
beyond the reach of U.S. authorities or their international 
partners. For example, illicit assets located in an 
``unhosted'' wallet (i.e., a digital wallet not hosted by a 
third-party institution, and which the user independently 
controls) that is stored locally in an uncooperative 
jurisdiction may be difficult to seize even with the assistance 
of tracing data. Likewise, a criminal defendant may reside in a 
jurisdiction where extradition or removal is unlikely, making 
arrest and prosecution more challenging.
    Law enforcement authorities can face a variety of other 
hurdles, particularly given the range of increasingly 
sophisticated obfuscation methods available to criminals. 
However, one of the main challenges they face is one of 
resources. Cryptocurrency-related crime continues to rise, with 
growing implications for everyday Americans, and bad actors 
continue to find new, complex ways to obscure their illegal 
activity. Although private-sector firms can provide needed 
assistance to investigators in tracing illicit activity, that 
assistance is insufficient. More agents and prosecutors with 
relevant expertise and training are required, and they need to 
be equipped with the tools and support needed to develop 
evidence for successful prosecutions. The Department of Justice 
(DOJ) and investigating agencies have made important strides 
recently in prioritizing cryptocurrency-related crime, but 
Congress should ensure that they are given the funding and 
resources needed to keep pace with the scale and severity of 
the threat.

Q.2. After a wallet involved in an illicit transaction is 
identified, based on your experiences or observations, how long 
have investigations into illicit financial activity typically 
taken to conclude? How much time does law enforcement usually 
require to seize illicit assets held at a wallet known to be 
illicit? What are the impediments to seizing illicit assets 
from known wallets?

A.2. Investigations into illicit financial activity can vary in 
length depending on a range of factors such as the complexity 
and sophistication of the criminal activity, the geographic 
scope of the conduct, and the resources available to law 
enforcement. Criminal investigations also are sometimes 
accelerated based on law enforcement priorities, a defendant's 
decision to travel, or other considerations.
    In some cases, investigations can move rapidly. For 
example, in March 2022, the U.S. Attorney's Office for the 
Southern District of New York charged two individuals in 
connection with a so-called ``rug pull'' involving nonfungible 
tokens (NFTs). According to the Government's allegations, the 
investigation began in January 2022, when law enforcement 
received reports from investors in the scam, and the defendants 
were arrested approximately 2 months later. \2\
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     \2\ ``Two Defendants Charged In Non-Fungible Token (NFT) Fraud And 
Money Laundering Scheme'', U.S. Dept. of Justice (Mar. 24, 2022), 
available at: https://www.justice.gov/usao-sdny/pr/two-defendants-
charged-non-fungible-token-nft-fraud-and-money-laundering-scheme-0. In 
considering the length of any investigation, it is worth noting that 
many criminal investigations continue after an individual defendant is 
arrested or assets are seized.
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    Other investigations progress more slowly. For example, in 
2016, U.S. law enforcement began investigating the hack of 
Bitfinex, a virtual currency exchange. In February 2022, almost 
6 years later, law enforcement recovered some of the stolen 
funds and arrested two individuals accused of laundering 
cryptocurrency stolen in the hack. \3\
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     \3\ See Complaint (Statement of Facts), United States v. 
Lichtenstein, No. 22-mj-00022-RMM (Feb. 7, 2022), available at: https:/
/www.justice.gov/opa/press-release/file/1470211/download; ``Two 
Arrested for Alleged Conspiracy To Launder $4.5 Billion in Stolen 
Cryptocurrency'', U.S. Dep't of Justice (Feb. 8, 2022), available at: 
https://www.justice.gov/opa/pr/two-arrested-alleged-conspiracy-launder-
45-billion-stolen-cryptocurrency. The two defendants are not charged in 
connection with the Bitfinex hack itself. It should also be emphasized 
that both cases described here remain pending, and the facts discussed 
remain allegations.
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    Whether and how quickly law enforcement can seize 
cryptocurrency from accounts known to contain illicit proceeds 
is fact dependent. In the Bitfinex case, for example, 
investigators seized a large portion of the stolen 
cryptocurrency shortly after gaining access to one of the 
relevant wallets. However, the case was exceedingly complex and 
took years to reach that stage. Investigators also were aided 
by favorable facts that helped them access the wallet and 
allegedly link it to the defendants. The defendants, for 
example, resided in New York and allegedly used email and cloud 
storage accounts that could be reached through U.S. process. In 
2021, agents were able to obtain a search warrant for one of 
the cloud storage accounts, which contained a file listing 
2,000 virtual currency addresses--almost all of which were 
linked to the 2016 hack--along with corresponding private keys. 
According to investigators, that information allowed them 
ultimately to seize, via a court order, the remaining illicit 
assets from the digital wallet that contained the addresses. 
\4\
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     \4\ See Complaint (Statement of Facts), United States v. 
Lichtenstein, supra n. 3.
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    Seizures in other circumstances can be even more 
challenging. Even if investigators can link a particular 
digital wallet to criminal conduct by a specific person or 
entity--which can be a difficult task in itself, given the 
types of obfuscation often employed--they may ultimately face 
jurisdictional or technical obstacles. For example, as 
described previously in response to Question 1, an unhosted 
wallet could be stored locally (and potentially offline) in a 
foreign jurisdiction. \5\ A seizure in such circumstances could 
prove difficult, particularly if the relevant jurisdiction does 
not have a cooperative relationship with U.S. law enforcement.
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     \5\ In the example given above from the Bitfinex case, the wallet 
described was unhosted, but it was within the reach of U.S. law 
enforcement authorities, and investigators allegedly were able to link 
it to identifiable U.S.-based individuals.

Q.3. Based on your observation, approximately how frequently is 
law enforcement able to convert identifications of illicit 
wallets into successful investigations? Relatedly, do you know 
of any law enforcement agency, or market research organization, 
that has identified or estimated the proportion of known 
illicit wallet addresses that are ultimately implicated in 
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indictments or illicit asset seizures?

A.3. In part because of the confidential nature of law 
enforcement investigations, I do not know what proportion of 
the digital wallets that have been linked to illicit activity 
have been implicated in investigations or prosecutions at the 
federal or other levels. Nor am I currently aware of publicly 
available reports detailing such information, although some 
blockchain analytics firms publish their own estimates of 
various statistics relating to cryptocurrency-related crime, 
and other parties have begun to track cryptocurrency-related 
enforcement actions. \6\ It should be noted that the amount of 
illegal conduct is likely higher than industry-reported 
estimates for a given year. Blockchain analytics firms 
routinely revise upward their own estimates of illicit 
transaction volume as more addresses linked to criminal 
activity are found. \7\
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     \6\ See, e.g., Chainalysis, ``The 2022 Crypto Crime Report'' (Feb. 
2022), available for download at: https://go.chainalysis.com/2022-
Crypto-Crime-Report; Morrison Cohen LLP, ``The Morrison Cohen 
Cryptocurrency Litigation Tracker'' (May 3, 2022), available for 
download at: https://www.morrisoncohen.com/news-page?itemid=471.
     \7\ See, e.g., ``Chainalysis 2022 Crypto Crime Report'', supra n. 
6, at 4.

Q.4. Illicit finance investigations are complex, and often 
involve an array of law enforcement entities and officials. 
Please describe the agencies and actors typically involved in 
an illicit finance investigation involving digital assets. For 
example, the recent recovery of $4.5 billion in cryptocurrency 
involved several federal agencies and multiple U.S. Attorney 
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offices.

A.4. At the Federal level, a criminal investigation of illicit 
activity involving cryptocurrency can include, among others:

    Prosecutors from one or more U.S. Attorneys' 
        Offices and, depending on the nature of the case, 
        potentially other components of DOJ (e.g., the Money 
        Laundering and Asset Recovery Section (MLARS); the 
        Computer Crime and Intellectual Property Section 
        (CCIPS); the National Security Division (NSD));

    Agents from various investigative agencies, 
        including, but not limited to, the Federal Bureau of 
        Investigations (FBI), the Internal Revenue Service--
        Criminal Investigations (IRS-CI), and/or Homeland 
        Security Investigations (HSI);

    State and local law enforcement agencies; and

    International law enforcement agencies and other 
        partners.

    In addition, in Federal criminal investigations, it is 
common for prosecutors and agents to coordinate with regulatory 
bodies such as the Securities and Exchange Commission (SEC) and 
the Commodity Futures Trading Commission (CFTC), as well as 
components of the U.S. Department of the Treasury (including, 
for example, the Financial Crimes Enforcement Network (FinCEN), 
the Office of Foreign Assets Control (OFAC), and the IRS).

Q.5. The Justice Department's recent enforcement report on 
crypto crimes notes that the illicit use of cryptocurrency 
falls into three broad categories. Bad actors may exploit 
crypto to: (1) engage in financial transactions associated with 
crimes, such as buying and selling drugs or weapons on the dark 
web, leasing servers to commit cybercrimes, or soliciting funds 
to support terrorist activity; (2) engage in money laundering 
or shield otherwise legitimate activity from tax, reporting, or 
other legal requirements; or (3) commit crimes directly 
implicating the cryptocurrency marketplace itself, like 
stealing cryptocurrency from exchanges through hacking or using 
the promise of cryptocurrency to defraud unwitting investors. 
From your experience as a prosecutor and your general knowledge 
of the industry, which of these three categories do you think 
Congress should be most concerned about, and what other 
categories of illicit activity involving crypto should Treasury 
and the Justice Department prioritize in their enforcement 
efforts?

A.5. The Justice Department's report provides a useful 
framework for understanding the variety of ways cryptocurrency 
can be used by bad actors. However, I am not in a position to 
prioritize one category of cryptocurrency-related crime over 
others. Each type of crime can pose threats to U.S. citizens in 
different and important ways, and in fact the categories 
frequently overlap and reinforce one another. For example, 
criminals engaged in ransomware attacks or the defrauding of 
unwitting investors regularly rely on money laundering to 
further their illicit activities. Moreover, a range of 
dangerous threat actors--rogue Nation States, terrorists, and 
criminal networks--have proven that they will engage in harmful 
conduct that spans multiple categories.
    Some threats, of course, do affect a broader set of victims 
or interests. For example, ransomware attacks, which rely 
almost exclusively on cryptocurrency as a means of payment, 
pose a serious and ongoing threat not only to U.S. businesses, 
but also to our national security. I trust my former colleagues 
at DOJ and their regulatory counterparts to identify the most 
serious threats based on the latest intelligence, and to set 
enforcement priorities accordingly. Congress should provide law 
enforcement and regulators with the resources necessary to act 
on those priorities.
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