Will Russia use cryptocurrencies to get around the sanctions?

In opposition to Russia’s military invasion in Ukraine, the US and the EU have announced broad sanctions against Russian corporations and persons, including transaction bans, asset freezes, payment system disconnections, and supply recalls. This way they intend to cut the country off from the global financial system and stifle its imports and exports. In this article, we will explain whether Russia could bypass the sanctions with cryptocurrencies.

According to Barron, the isolation of Russia’s financial system might lead to cryptocurrencies no longer trading in the same dynamic as other assets, as has been the case for some time. Mark Lopresti, managing director of Strategic Funds stated that the war has a positive impact on the cryptocurrency sector. For example, many people in Turkey have averted financial ruin by investing in crypto assets. According to Lopresti, we can see the same pattern in the war between Ukraine and Russia.

Meanwhile, US President Joe Biden’s government is concerned that cryptocurrency could be used to evade restrictions. According to Bloomberg, US officials are requesting cryptocurrency exchanges to monitor transactions made by Russians to avoid sanctions. Decrypt notes that the search for other sources of money when a country is cut off from the global banking system is not new. For example, Iran used extra oil to produce energy to mine bitcoins after the US imposed a near-total economic embargo. With stolen cryptocurrencies, North Korea funded nuclear and ballistic missile projects.

According to the Washington Post, Russia has earned a negative reputation as the epicenter of illegal crypto-activity. The country is responsible for crypto mixers, which allow the blockchain transaction trail to be muddled, as well as operating illegal cryptocurrency exchanges, which the US has already sanctioned.

However, the US anticipated this possibility, believing that cryptocurrency exchange platforms would exclude sub-sanctioned organizations and people from doing crypto transactions. Mykhailo Fedorov, Ukraine’s Minister of Digital Transformation, also encouraged them to join the restrictions. Such platforms as QMall, Cex.io, BTC-Alpha, and Gopax, agreed to comply with the request, while the larger companies, such as Binance, Coinbase, and Kraken, rejected.

According to a Coinbase spokesman, the platform is banning transactions to blacklisted addresses identified by the Treasury Department’s Office of Foreign Assets Control. Also, it traces the activities of accounts that may be associated with sanctioned groups.

They committed to defending consumers’ interests and banning only those who are sanctioned. Kraken further stated that there are no legal justifications for mass blocking. Bitstamp, Bittrex, Coinmama, Bitpanda, Huobi, and OKX exchanges, as well as NFT-marketplace OpenSea, did not respond yet.

In truth, not all services are required to report to authorities, subject users to verification, and collect personal information. On the market, there are decentralized cryptocurrency exchanges that do not keep customer funds and adhere to anonymity. However, it is no longer only an issue of legal compulsion. According to Tom Keating, the Director of the Financial Crimes Research Center, now we do not speak only about reputation. Nobody wants to support someone who is attempting to avoid international sanctions by using cryptocurrencies.

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Valentyna Bereza, Team bit4you.