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Sanctions designations, a major headache for financial institutions, have increased tenfold during the last 20 years, a new U.S. Treasury review finds, reminding the digital asset space that they too must comply.
Earlier this week, the U.S. Treasury published its 2021 Sanctions Review, a broad review aimed to modernize the U.S. sanctions policy and operational framework.
The report comes 20 years after the September 11 attacks, which made economic and financial sanctions a “tool of first resort” to protect the U.S. national security, and is a result of Treasury Secretary Janet Yellen’s commitment made during her confirmation hearing to carry out a comprehensive review of sanctions.
Although the review found that sanctions designations increased by 933 percent throughout the past 20 years, the Treasury is concerned that new and emerging challenges hinder the efficacy of U.S. sanctions.
In an effort to modernize the sanctions framework, the Treasury proposes five recommendations: adoption of a structured policy framework that links sanctions to a clear policy objective; enhancing multilateral coordination; calibrating sanctions to mitigate unintended impact; ensuring sanctions are easily understood, enforceable, and adaptable; and investing in modernizing the Treasury’s sanctions technology, workforce, and infrastructure.
“To ensure sanctions continue to support U.S. national security objectives, the U.S. government must adapt and modernize the underlying operational architecture by which sanctions are deployed,” the document says.
“These changes are also needed to keep pace with the evolution of global financial architecture, which has a profound impact on the efficacy of U.S. financial sanctions,” it continues.
Digital assets
The paper stresses that digital currencies and alternative payment platforms potentially reduce the efficacy of U.S. sanctions. These are not only opportunities for malicious actors to circumvent the U.S. financial system, but may also reduce the dollar’s global role by creating alternative financial and payments systems.
“We are mindful of the risk that, if left unchecked, these digital assets and payments systems could harm the efficacy of our sanctions,” the paper says.
However, the paper acknowledges the Treasury’s role in enhancing communication and engagement with the digital asset industry to ensure sanctions are understood, and proposes the Treasury invest in deepening its institutional knowledge in the digital assets and services space.
This recommendation comes hot on the heels of recent guidance published by the Treasury last Friday (October 15) to help the virtual currency industry better understand compliance with the existing sanctions regulations.
