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1 [1] (February 8, 2018)

handle is hein.crs/govchut0001 and id is 1 raw text is: FF.ri E~$~ & February 8, 2018 Digital Currencies: Sanctions Evasion Risks As the market for digital currencies evolves, one area on which Congress has focused is the potential use of digital currencies for sanctions evasion. Digital currencies face an uneven international regulatory environment, and countries are considering different approaches to regulating and/or issuing digital currencies. Some governments are exploring the possibility of issuing digital currency as a means of sanctions evasion (as in the case of Venezuela and Russia), while others are exploiting weaknesses in existing virtual currency markets to evade restrictions on access to the international banking system (as in the case of North Korea). M')gkafl Cu,r' ,,cy7 Mauket Money is the set of assets used to buy goods and services from others. It functions in the economy as a: (1) medium of exchange; (2) unit of account; and (3) store of value. Although money may be made of materials that have intrinsic value, such as gold, most countries today use fiat currency, which has no intrinsic value, but serves as money by government decree. Virtual currencies are digital representations of value that can be digitally traded and function like money. Unlike fiat currencies, virtual currencies do not have legal tender status. Virtual currencies may be convertible or non- convertible. Convertible virtual currencies can be exchanged for fiat currencies. Non-convertible virtual currencies are restricted to online domains (such as multiplayer online gaming). Some virtual currencies are run by a centralized administrator that issues currency and maintains a central payment ledger. Other virtual currencies are decentralized, for which transactions are recorded on a blockchain ledger and rely on encryption techniques to control the creation of monetary units and to verify the transfer of funds. Convertible, decentralized currencies are also called cryptocurrencies. Many central banks worldwide, including the U.S. Federal Reserve and the People's Bank of China, are evaluating the creation of digital representations of fiat currencies, or digital fiat currencies. In September 2017, the Bank for International Settlements, an organization of 60 central banks including the U.S. Federal Reserve, recommended that central banks pay attention to the development of virtual currencies and consider the issuance of their own digital currencies. Growth in the Cryptocurrency Market Bitcoin, launched in 2009, was the first and continues to be the most widely used cryptocurrency. Today, there are nearly 1,500 cryptocurrencies in circulation with a total market capitalization of $340 billion, although valuations have fluctuated widely (Figure I). The five lairgest cryptocurrencies account for 70% of total virtual currency market capitalization, and include Bitcoin ($121 billion); Ethere um ($70 billion); Ripple ($28 billion); Bitcoin Cash ($15 billion); and Cardano ($9 billion). Figure I. Market Capitalization of Major Cryptocurrencies ($ in billions) 15c ~ ~ ~ ~ ~~R ........................... .................................................. ...... ...... ...... Source: https://coinmarketcap.com/. Virtual currencies have the potential to revolutionize the financial and banking industries. They could increase payment efficiency, reduce transaction costs of payments and fund transfers, increase participation in the financial system, and facilitate transactions. Digital currencies, however, also present risks. Virtual currency platforms remain largely unregulated, and could be vulnerable to fraud and theft. There are also risks related to security, payment beneficiary identification, and currency volatility. Virtual currencies may also pose a variety of illicit finance concerns. They provide total or partial anonymity to users and transactions and can be used as an alternative to the formal banking sector, which is more highly regulated. The uneven international regulatory environment surrounding the rapidly evolving virtual currency market is also attractive to illicit actors, who may seek to exploit virtual currencies operating in unregulated jurisdictions to launder ill-gotten funds, finance terrorism, or evade sanctions. Evasm-, ,'isd Recent events have highlighted the interest of some governments subject to economic sanctions in exploiting virtual and digital currencies to evade U.S. sanctions. According to Treasury officials, however, sanctions evasion risks posed by virtual currencies have been limited in .O 'T p\w gnom ggmm mppm qq\ a , q 'S I 11LULANJILiN,

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