During a Senate hearing on April 9, Senator Tim Scott launched a pointed critique of the current US administration, accusing it of making digital assets the scapegoat in its efforts to combat terrorism financing.

He argued that this focus neglects more significant sources of such funding, notably those benefiting Iran, including the country's substantial oil exports and funds ostensibly earmarked for humanitarian relief.

Addressing Deputy Treasury Secretary Adewale Adeyemo, Scott raised concerns over the Treasury's requests for expanded authority over cryptocurrencies, which he believes sidelines the more extensive issue of terrorism financing through traditional means.

These traditional means include Iran's $35 billion in oil exports and an additional $16 billion in US hostage relief and electricity waivers, which Scott claims facilitate the Iranian government's misuse of funds.

"The focus on crypto misses the 'elephant in the room' as the scope of the conversation regarding illicit financing is far larger than digital assets."

In response, Adeyemo defended the administration's focus on cryptocurrencies, citing the distinct challenges they pose, such as Russia's use of stablecoins to evade sanctions and North Korea's reliance on mixers to obscure financial transactions.

Adeyemo reiterated the Treasury's request for additional powers over crypto, aiming to introduce secondary sanctions against foreign crypto providers, tighten existing regulations, and address risks posed by international crypto platforms.

The hearing also touched on the abuse of humanitarian funding, with Adeyemo assuring that the US remains committed to humanitarian relief despite Iran's known misuse of such funds.

Other senators, including Committee Chairman Sherrod Brown and Senators Bob Menendez and Elizabeth Warren, expressed support for tighter regulations on the crypto sector, highlighting its potential misuse for terrorism financing and its role in enabling countries like Iran to benefit from blockchain technology.

Senator Warren specifically pointed out Iran's role as a blockchain validator, which could earn the country millions in transaction fees, including from US transactions.

That prompted a call for extending financial institution regulations to blockchain validators to prevent abuse, underscoring the broader debate on effectively regulating digital assets without stifling innovation or overlooking more significant issues in the fight against illicit finance.