By Hannah Lang

(Reuters) – Cryptocurrency evangelists are on the defensive amid warnings from U.S. and European lawmakers that digital asset companies are not up to the task of complying with Western sanctions imposed on Russia following the country’s invasion of Ukraine.

This criticism has led to the cryptocurrency industry trying desperately to control the story. Many executives are frustrated by the lack of compliance at major exchanges like Coinbase (NASDAQ) and Binance.

However, increased scrutiny may be an opportunity for the sector prove it isn’t the Wild West of finance as regulators claim.

Matt Homer of Nyca Partners, a resident executive at the venture capital firm Nyca Partners said that “it’s an industry opportunity to demonstrate that it is mature” and how it can manage risks properly.

While the United States, its allies and others moved to impose severe sanctions against Russia’s banks and elites as well as other state-owned firms and companies, much of crypto was left stranded.

Crypto exchanges, unlike other payment providers, have refused to block all Russian users. This is in direct violation of the sector’s libertarian principles. It has also raised concerns between U.S. legislators and European officials that digital assets might be used to bypass sanctions.

U.S. U.S. Senator Elizabeth Warren claimed that many cryptocurrency exchanges and wallets lack compliance and don’t collect customer identities.

However, executives from exchanges such as Kraken, FTX and Coinbase, along with industry trade groups say otherwise.

Elena Hughes (chief compliance officer at Gemini), stated, “This rhetoric has been inaccurate.” She added that clients are screened like other financial firms. “We have invested many resources in ensuring that we have all the controls we need (and that things are working as they should).

Coinbase posted a blog on Monday detailing the controls it has in place. It noted that more than 250,000 addresses were blocked by Coinbase for Russian persons or entities suspected to be engaged in illegal activities.

FTX US, a Chicago-based Crypto Exchange, stated that it holds multiple regulated licenses. It also continues to adhere rigorously with all applicable sanctions.

Kristin SMITH, the Blockchain Association’s executive director, stated, “For the majority of these companies, they have very robust system in place, and it’s very simple for them to comply sanctions, just as any other financial institution.”

RISK EXISTENTIAL’

The cryptocurrency community has touted its digital assets from the beginning as anonymous transaction vehicles. A slew federal enforcement actions for money laundering, fraud and unregistered coins offerings have only strengthened the belief that these companies can flout the law.

As cryptocurrencies have risen in value to more than $3 trillion, and as Americans continue to invest in this asset class, the sector has tried to get rid of its bad image. This is by improving its compliance standards.

Although lawmakers are concerned about the possibility of crypto sanctions evasion being evaded, officials from Biden’s administration have stated that they don’t believe that digital assets can be used to bypass all restrictions.

A person with knowledge of the matter stated that U.S. Treasury Department had reached out and explained its expectations to crypto trade groups and exchanges in order to establish a channel of communication for any questions.

According to this person who spoke only on condition that they remain anonymous, officials are impressed with the large number of compliance checks implemented by firms.

Charles Delingpole is chief executive officer of ComplyAdvantage. This anti-money laundering technology company works with many prominent crypto companies, such as Binance and Gemini.

He stated that the penalty for not clearing dollars was more than just being punished. He added that if money is being laundered, this can lead to huge public outrage. Companies found to have facilitated illegal cash flows will be subjected as well.