Cryptocurrency has been in the spotlight amid Russia's invasion of Ukraine, both as a fundraising tool for the Ukrainian side and a potential means for Russian entities to evade sanctions. In response, Hochul said the DFS will speed up its procurement of blockchain analytics services, although a specific timeline wasn't given.
The move will bolster the agency's efforts to be a data-savvy financial regulator and will be useful in the department's ongoing efforts to ensure compliance with the Bank Secrecy Act and anti-money laundering laws, the announcement said. Specifically, these tools will help "detect exposure" to sanctioned individuals and entities among digital-asset businesses licensed in New York, the announcement said.
"We know that bad actors will try to evade sanctions through the transmission of virtual currency, which is why it is imperative that we have the ability to monitor transactions and exposure in real-time," superintendent of financial services Adrienne A. Harris said in a statement.
Wednesday's statement follows a Friday letter from the DFS warning that Russia's invasion, and the subsequent sanctions, has "significantly" increased the risk that cryptocurrency could be used to get around sanctions. Hochul on Sunday also signed an executive order directing all state agencies and authorities to divest public funds from Russia.
Federal agencies and U.S. lawmakers have also repeatedly warned about the use of cryptocurrency for a range of illicit activities, such as ransomware, drug trafficking and sanctions evasion. On Wednesday, a group of Democratic senators raised concerns about the possibility of Russian actors using cryptocurrencies to evade sanctions, and asked Treasury Secretary Janet Yellen to detail the U.S. Department of the Treasury's enforcement plan.
Digital assets have also been used to raise funds for Ukraine's government and its military. As of late morning Wednesday, the government and various nongovernment groups had raised roughly $42 million combined in crypto-asset donations, according to a report by blockchain analytics firm Elliptic.
Several major cryptocurrency exchanges, for their part, have largely resisted calls to issue blanket bans on all Russian users, although they've said sanctions compliance is top-of-mind. Coinbase Global Inc.'s Chief Legal Officer Paul Grewal reiterated that stance in a brief tweet on Monday, citing a longer statement that said a unilateral ban would harm ordinary Russian citizens.
"We will continue to implement all sanctions that have been imposed, including blocking accounts and transactions that may involve sanctioned individuals or entities," the statement said. "Our mission is to increase economic freedom in the world. A unilateral and total ban would punish ordinary Russian citizens who are enduring historic currency destabilizations as a result of their government's aggression against a democratic neighbor."
Representatives for the Department of Financial Services did not comment beyond the press release.
--Additional reporting by Jon Hill and Dorothy Atkins. Editing by Jay Jackson Jr.
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