Are cryptocurrencies neutral?
If we had asked Satoshi Nakamoto, the pseudonymous person (or persons) who created the Bitcoin platform in 2008, he/they likely would have answered yes to the question. The whole point of cryptocurrencies like bitcoin was neutrality—the fact that no government, bank, or entity could prevent you from using it, whether you were paying for a pizza or a forbidden book.
That, of course, started to change as soon as crypto’s value made it the perfect medium for criminal transactions, from ransomware to darknet marketplaces. Regulators around the world demanded that exchanges and other “off-ramps” blacklist cryptocurrency from accounts linked to criminal activities or individuals, despite illicit trades accounting for just 0.15 per cent of global crypto movements in 2021.
Can the Russian government avoid sanctions by using cryptocurrencies?
No. Crypto isn’t helping the Russian government evade sanctions, although this feels like a perfect test case for crypto’s value proposition that has yet to materialise. Part of that is because the crypto industry doesn’t have sufficient liquidity to meet the needs of a sovereign nation.
Can sanctioned Russians avoid sanctions by using cryptocurrencies?
Cryptocurrency exchanges are reportedly blocking all transactions from accounts known to be linked to sanctioned individuals. Crypto exchange Coinbase has blocked over 25,000 Russia-linked addresses that it believes were linked to illicit activity to comply with sanctions against Russia.
Regulated exchanges are required to carry out know-your-customer (KYC) and anti-money-laundering (AML) checks. Some, however, have been criticised for alleged laxity. What crypto compliance firms do know is that right now, cryptocurrency trading is skyrocketing in popularity – not only in Russia, but also in Ukraine.
Are all Russians sanctioned?
The Ukrainian government is pushing for a blanket ban on cryptocurrency transactions coming from all Russian individuals, regardless of sanction status, to “sabotage ordinary users” and put pressure on Putin’s regime. Exchanges have so far resisted that call, and the CEOs of both Binance and US-based Kraken have come out strongly against the idea, citing crypto’s libertarian underpinnings. Indeed Binance’s top executive, Changpeng “CZ” Zhao, published a blog post elaborating on that position and maintaining that crypto is an unlikely tool for Russia to circumvent sanctions.
Nevertheless, if legally required to do so by US or European authorities, exchanges would have to resort to geo-blocking techniques to prevent all Russians from using their services.
Be prepared!
If you are engaged in any aspect of regulatory, risk, operational and compliance responsibilities in banks, cryptos, service providers and the wider finance industry you need to be prepared for increased scrutiny, including the latest FATF regulations.
Join us on April 12th to discuss the current state of international regulation; how to ensure compliance – and whether the “travel rule” is the answer in defending against sanctions evasion.
Register for this event here.
Read more on related topics
Further advice
We are experts in all aspects of financial crime prevention and regulatory compliance within banking operations and the wider financial sector.
To find out more about how we can assist you, please contact us.
