Crypto Tethers ’em All: US Plays Catch Up With Iran’s Crime Nexus

The verdict of Tuesday 9 April hearings of the Senate Banking Committee is simple: the Biden administration has failed to plug a yawning gap in its vast sanction regime: the abuse of cryptocurrency by the Iranian proxies’ crime nexus.

The hearing reverberated eerily echoes of a déjà vu about cryptocurrency and sanctions as deputy secretary Wally Adeyemo (US Treasury Department) requested the Congress to pass new laws authorizing his department “to interdict terrorist financing and sanctions evasion techniques that use cryptocurrency”.

This was the second time that the US Treasury has made such a request. And the first time? It was in November. An oddly “inharmonious” chorus from left, Elizabeth Warren, to right, Thom Tillis, treated Mr. Adeyemo to their Senatorial concert in dissatisfaction at the committee. Senator Tim Scott’s denunciation of the Biden administration’s handling of the sanctions in the case of Iran encapsulated the republican dissatisfaction with the administration’s much too lenient approach to the Iranian regime. However, the hearing was hinge on much more cryptic theme.

The hearing’s buzzword was “stable coin”; a type of crypto currency immune from market fluctuations whose base value stably corresponds to “one US dollar.” According to a Wall Street Journal (WSJ) report, , companies like Tether Holdings with their specialization in “stable coin” have helped fuel Russian sanction evading traders to acquire parts and weapons across the world. The statement Adeyemo indeed underscored the importance of “stablecoins” as means of circumventing US sanctions. Senator Warren, taking an inquisitive cue from Adeyemo’s own statement, pointed out that the Iranian proxies’ crime nexus used the same stable coins with skill and agility reaping multimillion dollar transactions in “drug trade”. The hearing also shed light on how the Iranian IRGC has been using cryptocurrency to fund Hamas and Islamic Jihad of Palestine.

As poignantly put to me by Iran International’s Fardad Farahzad in an interview on the very day of the Senate Banking Committee hearing (9 April 2024), the burning question remains: What set of reasons may account for the Biden administration to appear so powerless or incapable of dealing with the Iranian regime chicaneries and shenanigans? Should one ascribe these shortcomings to the administration’s proclivity to avoid escalation with the Iranian regime? Or should one seek to find the problem in the technical troubles that afflict the running of the administration’s vast sanctions’ regime: from North Korea, Cuba, and Venezuela to Iran and Russia, to name a few?

In short: All the above! First, the US Treasury must be fully apprised of studies published as late as 2019 on how countries like Venezuela and North Korea have turned to cryptocurrency to circumvent sanctions. Second, the Biden administration adheres to a national security orthodoxy: to avoid any tension escalation with the Iranian regime as it continues to hold secret “(in)direct” talks with it in Oman.

Third, long before there was any internet in its present form, Iran, Syria, and Hezbollah were schooled in the shadowy trade of arms and drug smuggling through money laundering and other types of financial crimes by some of the professionals of the end of the Cold War era, namely, Gadhafi’s Libya and the IRA. Both Gadhafi’s Libya and the IRA had masterly dabbled in the arms and drug trafficking circa 1970s-1990s using transnational financial crime schemes. Thus, before 2009 bitcoin revolution, the IRGC and the Hezbollah of Lebanon had already ventured in multitude criminal enterprises to generate revenue as they put to practice all they had learned from Gadhafi and the Provos.

Ever since the 2000s, the Iranian regime and its nexus of criminal proxies have survived, adapted, and thrived through mastering the tools made available to them via cyberwarfare and the dark web. As IRGC expanded into cyber warfare, its main proxy, the Hezbollah too expanded cyberwarfare capabilities to break into Israeli and Euro-American cyberspace; which availed them with data commodities that they could sell or barter. Yet, the 2009 bitcoin revolution availed them with the holy grail of “mobile currency” that would ease the onerous and menacing task of gold bar and cash smuggling across national borders. It was just a question of time where and when they would seek to tighten their grip over crypto currency. In the advent of the Civil War in Syria, which ushered in a new era of US sanctions against the Iranian and Syrian regimes along with their Hezbollah of Lebanon ally, cyber currency found a niche amongst many transnational non-state actors like no other. Not only did Hezbollah begin to dabble in bitcoin but so did others like al-Qaeda and ISIS.

February 2022 Russian invasion of Ukraine made Russia a major member of the club of the countries subjected to US sanctions. Russian officials indeed shuttled back and forth to Tehran to not only integrate the Russian banking system with the Iranian one, but to sit in as astute “sanction evasion” apprentices in the workshops of Iranian sanction evading masters. Such a vast and unrequited collaboration undoubtedly has created a challenge for the US: How to effectively enforce its sanctions.

As to Islamic Jihad of Palestine, Hamas, and Hezbollah, the events of 7 October 2023 forced Israel to bring to bear much needed cyberwarfare to begin tearing apart the crypto networks that were partly responsible for funding Hamas. By November 2023, various investigations established that Hamas did use a vast network of crypto exchanges that constituted “a small but deadly” portion of its financial resources.

Over the past thirty years, sanctions have become a major tool of US foreign policy. In fact, the number of sanctioned countries on the respective US treasury website includes over twenty different countries. Such an estimate is indeed a nominal one, for any third-party country, financial institution, enterprise, and individual that does not abide by the US sanction regimes can themselves be subjected to “secondary sanctions” and penalties. A report by the Economist establishes that sanctions are a favourite foreign policy tool for great many countries in the 21st century for they are perceived to be a low cost foreign policy leverage as opposed to direct military conflict.

Yet, no country, not even the United States with all its bureaucratic might and high-tech prowess, can muster all the human and technological resources to enforce the sanctions it has itself imposed on, one could say, the whole planet. As the United States continues to be the number one economic powerhouse in the world, many major US financial institutions and enterprises are in dire need of master experts to help them avoid violating the complex behemoth of US sanction regimes and regulations. The Biden administration seems to be shedding much invaluable human resources assets to a private sector that is willing to outbid the US government to stave off the wrath of US Treasury. The “Brain Drain” of “Sanctions Experts” started long before Biden took office.

As Trump administration ramped up sanctions against China and other US competitors, the US sanction regime ballooned to an unexpected size. Many US and Western financial institutions and enterprises have since been desperate to hire the right expertise. In such an environment, the US government sanction mandarins are thus the first-class experts. Against the backdrop of such a huge demand, when Bloomberg reported the departure of Elizabeth Rosenberg, then Assistant Secretary for Terrorist Financing and Financial Crimes at the US Department of the Treasury, observers wondered about the reasons of her departure and queried about her replacement.

Further investigation through LinkedIn establishes Ms. Rosenberg has indeed departed to a coveted position in the private sector where her expertise is needed the most: Managing Director, Global Financial Crimes Public Policy Executive at Bank of America. And has the Biden administration been able to find her a permanent replacement? Not yet. The present Acting Assistant Secretary for Terrorist Financing and Financial Crimes at the US Treasury Department is Anna Morris who is in fact Deputy Assistant Secretary for Global Affairs with all the corresponding duties and responsibilities of that position.

In the end, the Senate Banking Committee hearings underscored that more than ever the United States needs to collaborate with Israel on this critical issue of stopping shady international actors from using crypt to fund their criminal enterprises. Irrespective of who is the occupant of the 1600 Pennsylvania Avenue, to unravel the complex crypto networks that “tether” the Iranian proxies’ criminal nexus, the US needs both the human expertise and the Artificial Intelligence that such a formidable task necessitates. To plug the crypto criminal gap, the US should perhaps first plug the Sanctions Experts’ Brain Drain and it is only then that all new laws can be effectively enforced.