President Biden’s executive order on cryptocurrency mentioned the word “illicit” no less than 24 times, so it should not be a surprise that the Senate held a hearing titled, “Understanding the Role of Digital Assets in Illicit Finance” last week. And similarly, it was not a surprise that Senator Elizabeth Warren (D‑MA) used that hearing, alongside several co-sponsors, to introduce new cryptocurrency legislation––legislation that might have been better had the expert witnesses been given the opportunity to weigh in on it before its introduction.

Throughout the hearing, the experts repeatedly confirmed that there is no evidence to suggest cryptocurrencies are being used by Russia or its oligarchs to evade sanctions. In fact, as Cato’s Matthew Feeney has explained, cryptocurrencies would be a poor tool for evading sanctions. And while one might be tempted to think legislation that targets something nonexistent would be harmless, Senator Warren’s legislation would have no shortage of collateral damage.

(Un)intended Consequences

Warren’s bill, the “Digital Asset Sanctions Compliance Enhancement Act of 2022,” may be intended to address the risk that people on the sanctions list will use cryptocurrencies to evade the law, but it reaches far beyond the Russian oligarchs and banks. The bill first requires the President to submit a report “identifying any foreign person” that has,

significantly and materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of any person with respect to which sanctions have been imposed by the United States relating to the Russian Federation, including by facilitating transactions that evade such sanctions…

To be clear, there are two drastically different groups of people being described here. The first group is made up of those who “significantly and materially” assist with sanctions evasion. And although officials at the FBI, Treasury, and White House have all stated that cryptocurrencies cannot be used effectively by Russia to evade sanctions, the language in the bill is still correct to note that active sanctions evasion is an illegal activity.

However, the second group being described is far broader as it captures anyone that “provided financial, material, technological support for, or goods or services to or in support of” anyone sanctioned. In practice, this means someone could be held liable for assisting sanctions evasion by simply creating open-source software. Taking the idea out of the realm of crypto, this would be akin to Microsoft being liable for someone plagiarizing an essay in a Word document or Gucci being liable for someone carrying stolen cash in their pocketbook. This level of liability is clearly overly broad. As Jerry Brito and Peter van Valkenburgh warned, “The mere fact that a stranger is using your software or network throughput to do something illegal without your knowledge cannot be a trigger for the crushing penalties that are sanctions.”

Unexpected Consequences

Although the bill itself was not a surprise given Senator Warren’s ongoing campaign against cryptocurrency, one item that was quite unexpected was the bill’s call on the president to exercise powers granted under the International Emergency Economic Powers Act to “block and prohibit all transactions [and interests] of a foreign person identified in a report [described above.]” If this sounds familiar, it’s because it was only just last month that Prime Minister Justin Trudeau invoked a similar Canadian law, known as the Emergencies Act, to block and prohibit the transactions of protestors.

Worse yet, not only would Warren’s bill call on the president to use this power to prohibit transactions, but it would also give the Treasury secretary full discretion to prohibit U.S.-based exchanges, software developers, and miners from engaging with anyone in Russia––not just those on the sanctions list.

So in the name of targeting a specific group of bad actors, the bill seeks to target even those that might unknowingly have been involved. And in targeting all of these people, it would call on the president and Treasury secretary to exercise unchecked powers. This is something out of Putin’s playbook or that of the Chinese government, not the United States.