WASHINGTON – The Biden administration warned Monday that digital currencies pose a threat to the American sanctions program and said in a new report that the United States needs to modernize the way sanctions are applied in order for them to remain an effective national security tool.

The warning was included in a six-month review by the Treasury of the national sanctions program, which has been used more aggressively as a lever in international diplomacy in recent years. The focus on digital currencies coincides with an administrative effort to determine how new financial technologies can be regulated without stifling innovation.

“Technical innovations like digital currencies, alternative payment platforms and new ways to hide cross-border transactions can all undermine the effectiveness of American sanctions,” the Treasury Department report said. “These technologies provide opportunities for malicious actors to hold and transfer funds outside of the traditional dollar-based financial system.”

The Treasury Department also raised concerns that America’s opponents have taken steps to reduce their dependence on the US dollar, saying new digital payment systems could exacerbate this trend and undermine the power of US sanctions.

The United States has imposed more than 9,000 sanctions, mainly to punish countries like North Korea, Iran and Venezuela for promoting terrorism, violating human rights, or engaging in other illegal behavior. The strength of the US dollar and its role as the world’s reserve currency means that the United States can cut countries, groups or individuals off from much of the global financial system at its discretion. This has intensified efforts Find new ways to circumvent America’s sanctions, also through the use of digital currencies that do not flow through the traditional banking system.

Sanctions imposed rose to record levels during the Trump administration, which averaged more than 1,000 new appointments per year, according to law firm Gibson, Dunn & Crutcher. This year the Biden administration is in the process of imposing 900 sanctions, which would be the third highest sum ever.

The seven-page report gave little detail on how the Treasury Department plans to adapt to the new digital financial architecture that is spreading around the world. Recommendations included investing in new technology and hiring people with experience in digital assets.

A senior Treasury Department official told reporters Monday that a key move to prevent sanction evasion is greater coordination with other countries to make it harder to convert cryptocurrencies into government-issued money.

Last month, the Biden administration took action against the growing problem of ransomware attacks. Expand the use of sanctions cut off digital payment systems that have enabled such criminal activity to flourish and threaten national security.

The President’s Working Group on Financial Markets is expected to issue a separate regulatory report this year Recommendations for stablecoins, which are asset-backed digital currencies that are becoming increasingly popular.

The sanctions review was led by Wally Adeyemo, Deputy Treasury Secretary. The report avoided making assessments of specific sanctions against countries or individuals. Instead, it provided general guidelines for improving the program the Treasury Department is running in coordination with the State Department and the National Security Council.

Other recommendations included creating a more systematic approach to sanction labeling, which could potentially remove some. The Treasury Department also said the sanctions need to be more targeted so that “the potential negative impact on others is minimized”.

The Ministry of Finance is examining the sanctions it has imposed on the Taliban since the fall of the Taliban government Afghanistan this summer and work to ensure that humanitarian aid can continue to enter the country.

The agency is currently in a leadership vacuum as Senate Republicans blocked the confirmation of two of President Biden’s nominees – Brian E. Nelson and Elizabeth Rosenberg – as their top sanctions officers. Since Sigal Mandelker stepped down from his post at the end of 2019, the Ministry of Finance no longer has an Under-Secretary of State for Terrorism and Financial News.

A senior Treasury official said Monday that the department needs confirmation of Mr. Biden’s candidates in order for the department to properly carry out its national security task.

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