As the Moscow war in Ukraine continues and the Russian economy and currency reach new levels, Washington is reportedly trying a new way of dialing pressure on Putin: sanctions against cryptocurrencies such as bitcoin and ethereum.
The Department of Justice announced early Wednesday a new party designed to enforce sanctions. As part of that, it will direct efforts to use cryptocurrency to avoid U.S. sanctions, foreign currency fraud or to avoid US responses to Russian military attacks.
The focus on Russia’s access to digital currency comes as the US and its allies, including the infamous Switzerland, impose severe sanctions on Moscow.
The concern is that the Kremlin, along with other supportive players who support the Ukrainian invasion, will avoid the penalty regime by using digital tokens, which are not owned or issued by a central bank official. Bitcoin, like other cryptocurrensets, is fragmented and boundless, meaning it does not respect national boundaries. Because there is no central authority to block transactions, digital currencies are also resistant.
Since Russia invaded Ukraine in Feb. 24, figures from crypto data provider Kaiko show that transactions between bitcoin between both the Russian ruble and the Ukrainian hryvnia have risen to very high in recent months. This is probably part of the reason why Ukraine has asked all top crypto trading companies to ban Russian users – a request rejected by many big players, who say such a move would go against the reason why crypto currency exists.
Despite growing signs of crypto acquisition – as well as diagrams from world leaders about banning Russian citizens who are allowed to exchange digital currency – crypto as a means of circumventing sanctions is not a viable option on average.
First, crypto markets offer low cash and token transactions, by design, can be traced through a public bridge known as the blockchain. Besides, experts tell CNBC that in the end there are better and smarter ways than using bitcoin to circumvent global financial boundaries.
“The size and level of crypto markets – and their financial situation – is not enough to close the gap caused by bank failures and other sanctions,” said Yaya Fanusie, a colleague at the Center for New American Security. security and risks of money laundering related to digital assets.
“It’s like, if someone could withhold your payment for a whole month then you have to rely on your pig bank to get it back,” he said. Russia knows sanctions
Russia is aware of sanctions, and its political faction has spent years developing mechanisms.
Moscow faced international condemnation in 2014 after Russia annexed the Crimean peninsula in Ukraine. It was also the year when a passenger plane en route from the Netherlands to Malaysia was shot down by a Russian missile shot at a Russian-controlled separatist in eastern Ukraine.
Since then, President Vladimir Putin has built buffers to protect Russia from reversing Western sanctions, economists estimated to cost Russia $ 50 billion a year.
In general, the way the sanctions work is for the government to produce a list of people and companies that should be avoided, and those who do business with these banned organizations are subject to severe penalties. But sanctions are only as good as the KYC (Know Your Customer) boarding requirements, explains Sarah Beth Felix, an anti-money laundering and sanctions officer.
“Depending on how strong that is, that drives the data, which drives the sanctions to work or not,” Felix said. “That’s a misunderstanding when it comes to basic cash flows, whether crypto, fiat, cables, paid in accounts – it all comes alive or dies from the basic data taken and verified by the ownership of the company, the individual, and all such things.”
Part of Putin’s strategy involved separating away US assets from the US dollar, developing a new type of euro- and gold-based debt structure. Putin’s military chest includes $ 630 billion in foreign exchange reserves, serving as a kind of financial shield aimed at mitigating the impact of sanctions.
The world’s financial bases have also helped to curb shock. CNBC reported that Russia has a debt-to-GDP ratio of only 18%, the balance of the current account, and the price of oil exceeding $ 113 a barrel (its highest level in more than a decade) is quite profitable. So far, the White House has made it clear that it will authorize the sale of Russian oil.
In addition, experts told CNBC that Russians have been fighting for this kind of division for months.
“Russia’s top officials and financiers have been preparing for sanctions for a long time,” said Salman Banaei, North American public policy chief of Chainalysis, which focused on tracking activity on blockchain networks.
Any money transfer that might have happened before the Russian invasion, Felix agreed.
“I think billions and billions of dollars have already passed from these previous companies and shell companies we have around the world run by Russian businesses and individuals, whether they involve crypto or standard bank cables to the bank,” he said. Felix.
Banaei admits that it is unlikely that nominees will choose to go through a large amount of crypto at this time. Instead, Banaei says if cryptocurrency is used to escape sanctions, it is likely to happen slowly, in the last few months.
“At the end of it all, the obvious, big gap we have is in the light of which companies, not in the U.S. not only, but all over the world, ”explains Felix. Bitcoin would not work anyway
Even though Russia wanted to use crypto to avoid sanctions, its economy is huge, the crypto market is very small, and any major transactions could be flagged.
“The size of the crypto market is small compared to what is happening in the banking sector,” Fanusie said.
The US has imposed new debt and share restrictions on some of Russia’s most critical state-owned companies with assets estimated at $ 1.4 trillion. These businesses will not be able to raise money through the U.S. market, an important source of revenue. The total market capitalization of cryptocurrency is estimated at $ 1.9 trillion.
Cryptocurrencies are also trading less, which means it can be difficult to buy large digital tokens like bitcoin. The bitcoin-ruble pair amounts to about $ 250,000 per trade in Binance, the world’s largest cryptocurrency exchange, compared to the bitcoin pair against the US dollar, with a market capitalization estimated at $ 2.6 million.
Delston tells CNBC that the size of the jobs that the Russian government will need to do will be repetitive of what Russian citizens may be doing right now. Not only will that be difficult to do in terms of available income, but it may also mark the work as a whole.
“In a blockchain, the size of the transaction is quickly available, and large transactions can be seen by anyone watching,” said Delston, who added that crypto currency is not the basis for the anonymity that is often made to be.
Although crypto has the advantage of excluding bank-to-bank transfers (with multiple police to enforce sanctions), all transactions that have been made are taken from the public blockchain, permanent, and static and can be tracked by nanoseconds.
If I give you a $ 5 loan, you will never go back to me, where if I was going to transfer money to my wallet, which is always linked to my wallet ID, which, when I go through a controlled exchange, will be there. All my CIP (Customer Identification Program) details, ”Explains Felix.
Chainalysis’ Banaei tells CNBC that a single tip on the cryptocurrency market, in a few hours, can expose a network of wallet addresses involved in ransomware fraud and money laundering, while a similar tip related to a regular bank phone can take several months to reach the same. the level of visibility of the criminal network and its money laundering.
Although there are secret tokens like monero, dash, and zcash, which have more anonymity built into them, they are often not as liquid as other tokens, as many regulated exchanges have chosen not to list them due to regulatory concerns.
There is also the question of what to do once you have the crypto in hand.
“It’s hard to buy things with cryptocurrency, especially big things,” Delston told CNBC. He says he does not know of any major electronics companies, exporters, or restorative manufacturers who accept cryptocurrency as payment, noting that “these are all kinds of things a country like Russia could need, because it does not. do it for themselves. ”
And while historically compliance with crypto exchanges and international sentencing regimes has not been good, Fanusie says it is actually much better, as these forums make their internal groups compliant with the law.
Federal prosecutors can add muscle to their crypto police operations, too. In February, the U.S. Department of Justice unveiled a new cryptocurrency law enforcement team. What about the digital ruble?
While much attention is being paid to the power of bitcoin to easily escape sanctions, the big issue for Fanusie is what authorized players are doing with digital banking, or CBDCs.
The Bank of Russia released a “digital ruble” consultation paper in October 2020, with Central Bank Governor Elvira Nabiullina saying the country plans to emulate and test it this year.
The digital ruble could be a virtual currency version of the national currency – similar to the Chinese digital yuan – that would be controlled by the Bank of Russia and use some kind of distributed leverage technology.
When it was first announced, a Moscow newspaper quoted officials as saying that the digital ruble would reduce dollar dependence, and reduce exposure to sanctions.
Just before the Russian invasion of Ukraine, former US Treasury Secretary Michael Greenwald told CNBC that the digital ruble could be a problem in the U.S.
“What scares me is that Russia, China, and Iran each create a central bank digital currency to operate without a dollar and other countries follow suit,” he said. “That would be scary.”
