Can Russia evade sanctions with cryptocurrencies?

The situation in Russia and Ukraine has intensified, and financial sanctions against Russia by the United States and Europe have escalated again.

On February 26, the third wave of sanctions against Russia began. The United States, the European Union, the United Kingdom and Canada issued a joint statement announcing a ban on the use of the SWIFT international settlement system by several major Russian banks. As soon as the news came out, analysts mostly used “financial nuclear bomb” and “nuclear weapons level” to describe the severity of this measure.

However, in the recent joint statement of the United States and Europe, they aimed at the Russian central bank, “to prevent the Russian central bank from selling dollar assets in large quantities in the international market, causing severe market volatility and even triggering a financial crisis, and destroying the economies of Western countries.” Once the assets of the central bank are frozen, Russia will not be able to use foreign exchange to intervene in the currency, making it difficult for the Russian central bank to stabilize the exchange rate.

Previously, some analysts believed that the rapid development of bitcoin and other cryptocurrencies in recent years may provide Russia with a means of evading sanctions. “As with the traditional financial system, Russia can use cryptocurrencies to evade and respond to this sanctions,” said Caroline Malcolm, director of international policy at blockchain analysis firm Chainalysis.

So, could cryptocurrency be Russia’s savior?

increasingly harsh periphery

Trading between the Russian ruble and crypto assets such as bitcoin and tether has doubled since the conflict began, reaching $60 million a day on Monday, according to cryptocurrency researcher Chainalysis. This suggests that Russian accounts, banned from the existing dollar-based financial system through sanctions, are depositing funds in cryptocurrencies or transferring wealth overseas.

However, sanctions related to Russian cryptocurrencies came at the same time.

On March 1, the U.S. Treasury Department officially added crypto asset restrictions to its sanctions guidelines against Russia. On the same day, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) solidified a Russia-related executive order issued by the Biden administration last year by issuing new rules for dealings with Russian entities. The executive order details the patterns in which accounts may be connected and thus blocked, noting that digital assets are included in the sanctions and should not be used to circumvent the order.

Additionally, the U.S. Treasury Department has asked Binance, FTX, and Coinbase to block sanctioned people and addresses. Currently, cryptocurrency exchanges Binance, Kraken and Coinbase have rejected a request by the Deputy Prime Minister of Ukraine to block all Russian cryptocurrency trading accounts. The three digital asset exchanges said they could not freeze the accounts of Russian users without a legal requirement. In addition, NFT platform DMarket, synthetic asset platform Public Mint, and chain game company Animoca Brands have suspended their services to Russian users.

Opinions vary

American anti-money laundering expert Ross Delston believes that due to the existence of cryptocurrencies, traditional financial sanctions are ineffective. He pointed out that the financial sanctions imposed by the United States and the European Union rely heavily on traditional banks as the first-line enforcers. If sanctioned corporate entities or individuals seek transactions denominated in traditional currencies such as dollars and euros, banks will be able to flag and block these transactions. . However, the nature of cryptocurrencies operating outside the realm of global banking makes them an excellent tool for evading sanctions.

A report by the U.S. Treasury Department in October last year also supported this view. Treasury officials warned at the time that the existence of cryptocurrencies could make U.S. sanctions less effective by “allowing sanctioned individuals to hold and transfer funds outside the traditional financial system.”

There are different views that Russia cannot and will not use cryptocurrencies to evade sanctions.

Concerns about cryptocurrencies being used to evade sanctions are completely unfounded, according to Jake Chervinsky, policy director at the Blockchain Association, a U.S. nonprofit. Chervinsky laid out three reasons why Russia is unlikely to use cryptocurrencies to bypass U.S. sanctions. First, the sanctions are not limited to the US dollar, it is now illegal for any US business or citizen to do business with Russia. “Whether they’re in dollars, gold, shells or bitcoin,” he said. Second, the financial needs of countries like Russia far exceed the current capabilities of the crypto market, which Chervinsky called “too small and too expensive.” , too transparent, useless for the Russian economy.” In other words, even if Russia had access to sufficient liquidity, it would still be unable to hide its trades in such a market. Third, Putin has spent years trying to free Russia from sanctions, but Russia has failed to build any meaningful crypto infrastructure or even finalize crypto regulations, so cryptocurrencies are not part of his plan.

Granted, banning cryptocurrency trading would be a tough task, as cryptocurrencies are designed to be inherently borderless, and most transactions are outside the government-regulated financial system. But given that prior to the conflict, Russian authorities still had internal divisions over how to treat cryptocurrencies and an unsound crypto infrastructure, it is still somewhat difficult for Russia to use cryptocurrencies to evade sanctions at this stage.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/can-russia-evade-sanctions-with-cryptocurrencies/
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