Former Presidential Advisor Warns of Cryptocurrencies’ Potential For Sanction Skirting

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Former Presidential Advisor Warns of Cryptocurrencies’ Potential For Sanction Skirting

Juan Zarate’s most prominent time in the limelight was during the presidential reign of George W. Bush. Serving as the former president’s Deputy Advisor and Deputy National Security Advisor for Combatting Terrorism, Zarate led the Treasury’s efforts to undermine the funding of terrorism by way of various financial embargoes and sanctions – efforts which were given elevated significance in the wake of 9/11.

A Nationless Workaround

Recently, however, the former deputy, now chairman of the Financial Integrity Network, has expressed concern about what he believes to be a new international threat linked to the world of finance – specifically, cryptocurrencies, and the blockchain technology through which they are traded.

Although the open nature of cryptocurrency is an essential feature for its users, Zarate expressed concern that this same lack of restriction could be used to bypass international financial restrictions such as those he developed to counter terrorist financing.

Many of the sanction tools that Zarate developed were heavily built upon the strong (and ongoing) influence of the US dollar as standard currency in international trading. A side effect of this sanction, naturally, is that any nation cut off from USD transactions is severely limited in their international trade options.

However, cryptocurrencies, and the blockchain technologies used to trade them with, being not technically tied to any particular nation, could theoretically be used to wholly circumvent these sanctions, thus opening a fresh route of unhindered trade to terrorist groups and rogue nations.

Indeed, the recent months have given rise to rumors of a number of governments and groups endeavoring to do precisely what Zarate predicts.

Whisperings from Moscow tell of the Russian government pushing for the development of a CryptoRuble to circumvent the sanctions placed on them by the US in the wake of the Crimean annexation. Similarly, Venezuela recently launched its oil-backed virtual cryptocurrency, “the petro,” with the express purpose of bypassing “financial blockades.”

Not Your Average Doomsayer

Zarate echoes a number of prominent individuals in the higher tiers of the financial and business world. All of which have also expressed similar concerns about the deregulated nature of cryptocurrencies fostering illegal and illicit transactions.

Most recently, BIS manager Agustin Carstens called for stronger regulation of cryptocurrencies in the belief that they aided tax evasion and money laundering. Economist Nouriel Roubini, the same economist who predicted the housing crisis in 2008, derided bitcoin users as “charlatans and swindlers.”

Discover CEO David Nelms, whose company is one of many that forbids its users from trading in cryptocurrencies with their credit and debit cards, scornfully characterized cryptocurrency investors as “crooks” who are “trying to get money out of China or wherever.”

It should be noted, though, that Zarate himself does not seem to regard cryptocurrencies with the same level of scorn as some of his peers. Instead, having served as an advisor to the US cryptocurrency exchange Coinbase since 2014, he could be looked upon as one of its earliest supporters.

Nevertheless, Zarate does not pinpoint any particular approach that he feels either governments or private entities ought to take on the issue. Nor does he condemn the technologies of cryptocurrency and blockchain outright. He does, however, push a centrist philosophy for proper evaluation of the “risks” that their adoption may represent.

Priyeshu Garg

Priyeshu is a software engineer who is passionate about machine learning and blockchain technology. He holds an engineering degree in Computer Science Engineering and is a passionate economist. He built his first digital marketing startup when he was a teenager, and worked with multiple Fortune 500 companies along with smaller firms. When he is not solving the transportation problems at his company, he can be found writing about the blockchain or hacking at a Hackathon.

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