Under the Radar: Alternative Payment Systems and the National Security Impacts... (EventID=115144)

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Connect with the House Financial Services Committee Get the latest news: https://financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinancialCmte Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Tuesday, September 20, 2021, at 10:00 a.m. (ET) National Security, International Development, and Monetary Policy Subcommittee Chairman Himes and Ranking Member Barr will host a hybrid hearing entitled, “Under the Radar: Alternative Payment Systems and the National Security Impacts of Their Growth." - - - - - - - - Witnesses for this one-panel hearing will be: • Scott Dueweke, Global Fellow, Science and Technology Innovation, the Wilson Center • Emily Jin, Research Assistant for the Energy, Economics and Security Program, the Center for a New American Security • Dr. Carla Norrlöf, Nonresident Senior Fellow, Economic Statecraft Initiative, GeoEconomics Center, the Atlantic Council • Ari Redbord, Head of Legal and Government Affairs, TRM Labs • Jonathan Levin, Co-founder and Chief Strategy Officer, Chainalysis Background Alternative payment systems are systems that transfer financial messaging instructions, those that settle and clear cross-border payments in foreign currencies, and mobile payment applications, but unlike payment rails and mobile payment applications commonly used in the U.S. (e.g. Visa or Cash App), alternative payment systems can operate independent of, and may never interact with, traditional financial institutions like banks. Whether owned and operated privately, or by another country’s government, some of these alternative payment systems have grown to become important players in the global financial system. In particular, alternative payment systems that are owned by, or based in, countries like Russia and China, raise key questions about the impact on national security, such as the efficacy of traditional regulatory and financial integrity tools, including U.S. economic and trade sanctions, as well as the impact on the strength of the U.S. dollar. How Alternative Payment Systems Can Render Sanctions Ineffective The dollar’s role as the world’s reserve currency allows U.S. policymakers to leverage coercive economic measures against individuals, entities, and regimes that threaten the national security, foreign policy, or economy of the U.S. For example, following Russia’s unprovoked invasion of Ukraine in February 2022, the U.S. and many of its allies took sweeping actions to isolate Russia and limit its access to U.S. dollars, thus denying Russia access to goods and services that are typically procured with dollars. This included a prohibition enacted by the Biden-Administration against U.S. persons from transacting with the Central Bank of Russia, the freezing of assets of the Russian Central Bank that were held in the U.S., and restrictions on Russia’s access to its international reserves. Similarly, on February 26, 2022, the European Commission also announced that several key Russian financial institutions would be removed from the SWIFT messaging network, limiting the Russian Federation’s ability to send and receive cross-border transactions and further isolating Russia from the international community. As a result of these actions, in March 2022, Visa and Mastercard announced that cards issued by Russian banks would no longer work at retail locations, ATMs, or for international payments. Due to these extensive sanctions and dislocation from international payment tools, Russia’s domestic currency lost significant value, leading financial analysts to predict that the Russian economy will contract by 6% in 2022. Alternative payment systems can be state-sponsored or may operate with government influence, making them tools of their home government’s domestic and international economic and national security objectives. Before Russia’s invasion of Ukraine in 2022, for example, the Russian government had taken steps to insulate its economy from the threat of economic and trade sanctions. Beginning in 2014, after Russia’s invasion and annexation of the Crimean Peninsula, the U.S. and several allies imposed coordinated sanctions on Russian officials and commercial sectors. To defend its economy against further sanctions – including possible expulsion from the SWIFT network – Russia began developing its own domestic financial messaging system. In 2017, Russia created the System for Transfer of Financial Messages (SPFS), a Russian ruble-based system that enables Russian-based banks to send and receive financial messages, similar to the SWIFT protocol. In combination with the launch of the Central Bank of Russia’s Mir card system to process domestic payments, these payment systems allow Russia’s economy to process transactions through payment rails that may be outside of the scope of U.S. financial transparency and sanctions... Hearing page: https://financialservices.house.gov/events/eventsingle.aspx?EventID=409762