US media: Cryptocurrency makes it easier for Russia to circumvent sanctions

Recently, according to US media reports, some blockchain experts said that Western financial sanctions against Russia are becoming easier to circumvent, partly because Russia is adopting a large number of cryptocurrencies.

According to CNN on February 24, as the situation in Ukraine deteriorates, the United States and its allies are imposing increasingly severe financial sanctions on Russian banks and "domestic oligarchs." However, some experts say that it is easier for Russia to circumvent these sanctions than before, and one important reason is that they are increasingly using cryptocurrencies to trade and protect their assets.

According to reports, the sanctions imposed by the United States and the European Union rely heavily on banks to enforce them. If sanctioned companies or individuals conduct transactions denominated in traditional currencies such as the U.S. dollar or the euro, banks are responsible for marking and blocking these transactions. However, the transaction records of cryptocurrencies are kept on the distributed ledger of the blockchain, and their operation is almost completely outside the scope of standard global banking operations.

" If the Russians decided to no longer use any currency other than crypto, they could effectively avoid almost all sanctions. I'm sure they're already doing that, " said Ross S. Delston, an anti-money laundering compliance expert.

In response, U.S. Treasury officials also warned in a report that cryptocurrencies allow bad actors to hold and transfer funds outside the traditional financial system, which could "undermine the United States' ability to impose sanctions." "We note that if not controlled, these crypto assets and payment systems could undermine the effectiveness of our sanctions. " The report wrote.

The report cited the example that according to research by blockchain data analysis company Chainalysis, some Eastern European countries that have been intensively sanctioned in recent years are among the regions with the highest volume of cryptocurrency transactions related to criminal activities. Here, websites used for illegal transactions are called "dark webs," which saw a record $1.7 billion in cryptocurrency inflows in 2020, most of which were Bitcoin. The growth in transactions in the region's dark web markets that year can almost all be attributed to a Russian dark web platform, Hydra. Chainalysis pointed out in a report in early February that Hydra is "the world's largest dark web market to date, with revenues in 2020 accounting for more than 75% of global dark web market revenues."

However, Delston also pointed out that simply replacing all dollar-denominated assets with Bitcoin is not enough to completely circumvent sanctions. He said that many things are difficult to buy and sell only through cryptocurrencies, especially commodities. Take the food import sector that Russia relies on as an example. Foreign food exporters will only accept the US dollar as the global reserve currency when conducting transactions, rather than cryptocurrencies whose prices fluctuate every moment.

In addition, Delston also said that because Bitcoin and other cryptocurrencies can be traced on the blockchain, it is difficult to launder money without leaving a trace, so "cryptocurrency is not a completely perfect solution for Russian oligarchs."

According to Xinhua News Agency, after Russia launched a "special military operation" against Ukraine, Biden announced on February 22 local time that he would implement comprehensive blockade sanctions against Russia's two large financial institutions, the Russian State Development Bank and the Military Bank. Russia will not be able to conduct lending transactions in the US and European markets, nor can it raise funds. On the same day, Canada, the United Kingdom, Australia and other countries also announced the first round of economic sanctions against Russia. On February 24, Biden once again authorized a new round of "comprehensive financial sanctions and strict export controls" against Russia, including freezing all Russian assets in the United States and restricting Russia's ability to do business in US dollars, euros, pounds and yen. In response, the Central Bank of Russia issued a statement on the 25th, saying that no matter what sanctions it is subject to, the country has plans to continue operating, and the Central Bank of Russia will provide support for banks affected by sanctions from the United States and other countries.