Lack of regulatory clarity on payment solutions could undermine US sanctions, says expert

According to former Department of State official Anja Manuel, if the United States isn’t able to maintain its dominance in financial innovation and payments, it could affect its national security policy, specifically on sanctions.

Speaking to Coinbase CEO Brian Armstrong and listeners in an April 21 Twitter Spaces discussion, Manuel said that because the U.S. was one of the biggest global leaders in payments, it allowed the government to enforce sanctions on “bad actors” like Iran or North Korea. According to Manuel, letting the country lead in innovation under clear rules reinforced U.S. national security controls, but China seemed to be catching up on dominance in mobile payments “both in sophistication and scale.”

“While we’re hemming and hawing here and not having a thoughtful regulatory framework in the U.S., China is marching forward, lots of other people are marching forward,” said Manuel. “If Chinese payments solutions, for example, gained a dominant foothold in the developing world, [sanctions are] going to become much, much harder.”

Join us live from the Capital in 15 minutes for this twitter spaces on how we get crypto policy working in America https://t.co/QVkGSjXjhF pic.twitter.com/VswGlY9JSR

— Brian Armstrong (@brian_armstrong) April 21, 2023

The U.S. enforces sanctions through the Office of Foreign Assets Control of the Treasury Department, which has announced several actions against Russian nationals and groups related to their involvement in the war on Ukraine — including sanctions on crypto wallets. The former Department of State official said sanctions generally worked “in a world of traditional banks” and “responsible” blockchain firms, but not when there existed financial technology firms available to individuals looking to circumvent restrictions.

Manuel added:

“Other thoughtful countries are getting their act together, from Singapore to the U.K. to the EU. This is not impossible — it just hasn’t happened in the U.S. In the U.S., regulation has been almost entirely by enforcement actions from the SEC.”

The Twitter Spaces discussion was part of Coinbase’s “Crypto435” campaign, aimed at promoting pro-crypto policies and candidates in the United States. Armstrong has reiterated calls for action among pro-crypto U.S. voters following the exchange receiving a Wells notice in March — suggesting a potential enforcement action from the Securities and Exchange Commission.

Related: What new EU sanctions mean for crypto exchanges and their Russian clients

“Countries aren’t going to wait for the United States to get this right,” Tomicah Tillemann, a former senior adviser to two U.S. Secretaries of State, said in regard to regulation. “At the moment, there are 114 different governments that are in pretty advanced stages of investigating their own central bank digital currencies. More than half of those are very far along in the process.”

Armstrong has been one of the more vocal critics among major U.S. digital asset exchange leaders in saying the SEC needs to provide “clear rules to regulate the crypto industry.” Amid the looming Wells notice, the Coinbase CEO said he met with SEC officials and U.S. lawmakers this week to push for regulatory clarity.

Magazine: The FBI’s takedown of Virgil Griffith for breaking sanctions, firsthand