Congress should kickstart the response to virtual currencies

Congress should kickstart the response to virtual currencies
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Bitcoin and other virtual currencies are no longer just a technological novelty or a speculative bubble. They are affecting U.S. national security. To face their potential threat, Congress should organize an expert task force on virtual currencies and require the executive branch to formulate a national strategy on virtual currencies.

The national security implications of virtual currencies have come to the fore. In March, President TrumpDonald John TrumpBiden, Sanders lead field in Iowa poll The Memo: Cohen fans flames around Trump Memo Comey used to brief Trump on dossier released: report MORE banned use of the new Venezuelan virtual currency, “el petro,” which aimed at evading U.S. sanctions. Then, a report revealed that Russia has advised Caracas on the currency, suggesting a concerted sanctions evasion scheme involving a U.S. competitor. Atlanta soon after suffered an attack in which the perpetrators took over the city’s computers and demanded a ransom paid in bitcoin.

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These developments point to how concrete the threat of virtual currencies is. Yet, the United States lacks a centralized source of knowledge or a national strategy to counter it. Congress should lead on both. The Venezuelan case is particularly foreboding. In the unlikely event of its success, el petro would reduce Caracas’s dependence on the dollar and help President Nicolás Maduro thwart the U.S. sanctions crippling Venezuela’s public sector and energy industry.

El petro is unlikely to be “kryptonite” for U.S. sanctions. It faces technical limitations, and, in the Maduro government, has an untrustworthy backer. Rather, it is Russia’s involvement that should worry Washington because it suggests how an adversary like Moscow can integrate virtual currencies into an insidious strategy to undercut the United States. In the short term, Russia’s support for el petro resembles its support for Venezuela’s ailing energy industry, as it is a way to cause headaches for the United States in the Western Hemisphere. We should focus on the long term.

El petro furthers President Vladimir Putin’s goal of moving the world away from the “excessive dominance” of the dollar. Originally, Putin thought that he could defang U.S. sanctions by encouraging the use of emerging market currencies that fall outside U.S. jurisdiction. Maduro’s project offered him a surprise assist. Moscow’s new support for el petro points to how virtual currencies can further the policy agendas of U.S. competitors in unexpected ways. Indeed, even if it fails, other sanctioned countries including Iran, North Korea, and Russia itself are already looking into leveraging or creating their own virtual currencies.

In the face of these challenges, the United States is caught on its back foot without a comprehensive response. To be sure, individual government agencies have reacted commendably. The Treasury Department issued guidance on how to treat both virtual currencies generally and el petro specifically. The Treasury will also prioritize virtual currency issues during the U.S. turn as the head of the Financial Action Task Force, the global standard setter for anti-money laundering and countering terrorist financing.

Congress should build on the Treasury’s response. Legislators should establish a task force to study and formulate recommendations on how to address the national security risks posed by virtual currencies. The task force’s greatest value may be building consensus and a common language between disparate stakeholders. At present, insufficient government guidance on what is allowed and what is expected in the fight against the abuse of virtual currencies is a fundamental problem for everyone. For their part, technology companies focus on disruption and innovation while financial institutions worry about maximizing compliance and minimizing legal exposure.

Communication and flexibility will be key. As the Treasury guidelines on sanctions note, “There is no single compliance program or solution suitable for every circumstance.” Bringing stakeholders together will narrow the divide between their different cultures and ensure the reliable flow of information and insights on virtual currencies. The task force can foster nimble responses to new threats and stimulate creative thinking on how to integrate this technology into national security planning.

Moreover, the task force will provide a knowledge base for a national virtual currency strategy. Congress should require the executive branch to create this document pivoting off the national security strategy, which highlighted virtual currency risks. In addition to sanctions evasion and ransomware attacks, virtual currencies can enable the financing of terrorism and money laundering. Each agency formulates an ad hoc policy response whenever some virtual currency issues falls under its jurisdiction. A comprehensive strategy will move the government from a “whack a mole” approach to a proactive one.

An expert task force and an explicitly articulated virtual currency strategy will do more than just catch up policy with technological reality. It will also support U.S. innovation in the space. With better guidance and communication from government, companies will face greater regulatory certainty and invest over longer time horizons. Congress should leap at the opportunity to foster innovation while protecting national security.

Elizabeth Rosenberg is director of the energy, economics and security program at the Center for a New American Security.

Edoardo Saravalle is a researcher in the energy, economics and security program at the Center for a New American Security