The US Treasury is raising alarms over Russia’s alleged use of the stablecoin Tether (USDT) to bypass international sanctions and sustain its military operations.

Undersecretary Wally Adeyemo highlighted this concern in a statement to the Senate Committee on Banking, Housing, and Urban Affairs. He emphasized the need for additional tools to safeguard national security.

Adeyemo’s testimony revealed a broader issue of terrorist groups and rogue states exploiting cryptocurrencies to conceal their identities and transfer funds. He cited examples, including al-Qaeda’s use of Bitcoin and the Islamic Revolutionary Guard Corps-Qods Force’s transactions with Hamas, to illustrate the growing illicit finance.

The US Treasury is particularly worried about Russia’s increasing reliance on alternative payment mechanisms like Tether’s USDT. This trend challenges the effectiveness of sanctions and highlights the urgency for a robust oversight and enforcement regime for cryptocurrencies and stablecoins.

“We’ve seen Russia increasingly turning to alternative payment mechanisms — including the stablecoin Tether — to try to circumvent our sanctions and continue to finance its war machine. While we have had some success in rooting out illicit finance in the digital asset ecosystem, we need to build an oversight and enforcement regime that is capable of preventing this activity,” Adeyemo stated.

To combat this threat, Adeyemo proposed three key reforms. First, introducing secondary sanctions for foreign crypto providers involved in illicit finance. Second, expanding authority to cover key players in the cryptocurrency industry. Finally, addressing jurisdictional risks from offshore crypto platforms.

Read more: Crypto Regulation: What Are the Benefits and Drawbacks?

The Treasury’s efforts to root out illicit finance in the industry are part of a broader strategy to ensure national security and economic stability.

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