Battle Lines Drawn In Cryptocurrency as Sanctions Continue to Weigh on Russia

As sanctions continue to hammer the Russian economy, some battles are taking place in the cryptocurrency world.

Ever since Russian President, Vladimir Putin, declared war on Ukraine, sanctions have been a heavily used tool to try and stop the invasion dead in its tracks. Putin has been showing no signs of slowing down his efforts to bomb civilians in Ukraine. While Putin may or may not care, Russian citizens are certainly feeling the weight of sanctions.

A big one was the PayPal/Visa/Mastercard suspensions which really did a number to seize up the flow of money in the country. What’s more is that large tech companies of all sorts made a beeline for the exits in Russia. This mirrored the exodus of large non-tech related companies also not wanting to do business in Russia. A spinoff of this exodus is the fact that Russian propaganda outlets like RT found themselves struggling to find a platform to continue their efforts to spread disinformation.

On the ground, Russian citizens – especially citizens who depend heavily on online transactions – have been finding themselves caught in the crosshairs. Many who depend on services like PayPal suddenly found themselves unable to continue doing business in the online world. We’ve seen reports that suggest that they are actively seeking alternatives outside of the SWIFT system. Some of those alternatives on the table are ending up not working either. So, many are left scrambling to try and stay afloat as the economy continues down its death spiral.

Many Russians are increasingly protesting against this war few even asked for. Before Putin cracked down on the media, stories of massive protests on the streets were flowing out of the country. Many were braving arrests to express their displeasure of what is happening. In one particularly gutsy protest, one woman managed to get into the shot of a news channel behind the main anchor to protest the war:

One thing is for sure, support for Putin’s war on Ukraine is far from unanimous in the country.

While the sanctions are definitely having an impact, some eyes are turning to cryptocurrency exchanges. Would those behind crypto honour the sanctions against Russia or would Russia’s elite be able to evade the sanctions altogether through currencies like BitCoin? Reports indicate that there are plenty that are attempting to stash their cash elsewhere through crypto. From Al Jazeera:

Crypto firms in the United Arab Emirates (UAE) are being deluged with requests to liquidate billions of dollars of virtual currency as Russians seek a safe haven for their fortunes, according to company executives and financial sources.

Some clients are using cryptocurrency to invest in real estate in the UAE, while others want to use firms there to turn their virtual money into hard currency and stash it elsewhere, the sources said.

One crypto firm has received lots of queries in the past 10 days from Swiss brokers asking to liquidate billions of dollars of Bitcoin because their clients are afraid Switzerland will freeze their assets, one executive said, adding none of the requests had been for less than $2bn.

“We’ve had like five or six in the past two weeks. None of them has come off yet – they’ve sort of fallen over at the last minute, which is not rare – but we’ve never had this much interest,” the executive said, adding his firm normally receives an inquiry for a large transaction once a month.

“We have one guy – I don’t know who he is, but he came through a broker – and they’re like, ‘we want to sell 125,000 Bitcoin’. And I’m like, ‘what? That’s $6bn guys’. And they’re like, ‘yeah, we’re going to send it to a company in Australia’,” the executive said.

US and European officials are apparently keeping an eye on things and saying that the sanctions do include crypto. From CoinTelegraph:

In a Friday announcement, the White House said leadership from the United States, Canada, France, Germany, Italy, Japan, the United Kingdom and the European Union will take additional actions aimed at economically isolating Russia in response to President Vladimir Putin’s military invasion of Ukraine. The announcement includes banning imports of many Russian goods, banning the export of luxury goods to Russia and guidance for the U.S. Treasury Department to monitor the country’s attempts to evade existing sanctions.

“Treasury’s expansive actions against Russia require all U.S. persons to comply with sanctions regulations regardless of whether a transaction is denominated in traditional fiat currency or virtual currency,” said the White House. “Treasury is closely monitoring any efforts to circumvent or violate Russia-related sanctions, including through the use of virtual currency, and is committed to using its broad enforcement authorities to act against violations and to promote compliance.”

The United States’ policy is part of a coordinated effort with the European Union and G7 nations to “collectively ramp up pressure on Putin” and impose additional financial restrictions on Russia. On Wednesday, the European Commission said its member states agreed to amend regulations with the goal of ensuring “even more effectively that Russian sanctions cannot be circumvented, including through Belarus,” specifically mentioning the possible use of crypto assets.

Regulatory agencies and government departments across many countries enacting such economic measures against Russia have also warned individuals and businesses dealing in crypto of possible enforcement actions. Bloomberg reported on Friday that the U.S. Justice Department will be forming a new task force aimed at freezing or seizing the crypto holdings of wealthy Russian individuals as well as investigating those banks and crypto firms that help entities named under sanctions for money laundering. In the United Kingdom, the Financial Conduct Authority and Office of Financial Sanctions Implementation issued a joint statement warning crypto firms to “play their part in ensuring that sanctions are complied with.”

“Financial sanctions regulations do not differentiate between crypto assets and other forms of assets,” said the U.K. regulators. “The use of crypto assets to circumvent economic sanctions is a criminal offense.”

So, officials are certainly aware of attempts of the Russian elite to circumvent the sanctions through crypto, but they say they are working to try and make sure that crypto can’t be used to evade the sanctions.

Obviously, the fact that crypto is much more difficult to track will make it harder to enforce the sanctions, but not necessarily impossible. Still, one thing one can take from this is that sanctions are definitely having an impact on even the close allies of even Putin’s inner circle. Given that attempts are being made in the first place is a pretty solid indication that they are definitely feeling the pain of those sanctions. It remains to be seen how effective sanction enforcement will be with these digital currencies, but it is something that officials are looking in to.

Drew Wilson on Twitter: @icecube85 and Facebook.

2 Trackbacks and Pingbacks

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: