The news: Chainalysis, a blockchain fintech that offers investigatory and compliance solutions, is proposing steps that the US government can take to clamp down on sanctions evasion and other illicit activities using cryptos.

• Co-founder and Chief Strategy Officer Jonathan Levin shared the company’s proposals in testimony before the Senate Banking Committee.

The proposals: Sanctions the US levied after Russia invaded Ukraine provided context for Levin’s testimony as he shared three short-term steps designed to address sanctions compliance.

• Add sanctions designations to entities that enable evasions, which could include crypto exchanges and mixers. Levin cited designations levied on two entities, Chatex and SUEX as precedents.
• Add digital wallets to sanctions designations of individuals—including their wallet addresses, to help cut off funding to the wallets.
• Boost information sharing to improve the government’s awareness of current threats.

Levin also proposed four long-term measures to better fight crypto-based illicit activities more broadly:

• Congressional funding for blockchain intelligence, to support tools and personnel count. The funding would go to two Treasury Department entities: the Office of Terrorism and Financial Intelligence (TFI) and the Financial Crimes Enforcement Network (FinCEN).
• Congressional funding for training and staffing agencies dedicated to probing illicit crypto activities.
• Give clarity to existing market regulators, like the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), with respect to their jurisdictional authorities in the digital assets space.
• Establish a Virtual Asset Coordination Center to enhance how federal agencies work together for the space.

The big takeaway: Chainalysis’ suggestions help advance the ongoing dialogue about regulating crypto. Oversight that ensures consumer safety will help the asset class shed its “Wild West” reputation and become more mainstream.

• Dedicated funding and resources for market regulators may assuage companies or individuals who are wary about participating in crypto.

Addressing sanctions in particular could help US authorities with a major enforcement gap: uncertainty over how much crypto exchanges are helping Russia dodge sanctions.

• In the same week, a group of Democratic senators proposed legislation to go after crypto companies that help with Russian sanctions evasion.