Tom Wilson

LONDON, (Reuters) – Some of the largest cryptocurrency exchanges in the world are staying in Russia. This decision is seen as a weakening of Western efforts to isolate Moscow after the invasion of Ukraine.

Western sanctions have forced financial companies and businesses to stop doing business with Russia as a result of their efforts to squeeze Russia’s economy.

Many of the top crypto exchanges around the globe, such as Binance and Coinbase (NASDAQ :), both based in the U.S.A., have refused to ban Russian clients. This despite the pleas of the Ukrainian government. They promised to screen all users and ban anyone who is targeted by sanctions.

This shows the ideological divide between traditional finance and cryptocurrency, whose roots are in libertarian ideas and distrust for governments.

According to the crypto-exchanges, cutting off entire nations would go against the bitcoin ethos that allows for payments to be made without oversight from government.

However, anti-money laundering experts warned that the exchanges might be allowing Russians to transfer money overseas and thus undermine Western attempts to force Russia into a ceasefire.

Ross Delston (a U.S. lawyer who was formerly a banking regulator) stated that sanctions have been reduced and that cryptocurrency “allows for an avenue to flight to safety that wouldn’t exist otherwise”.

Though most exchanges will require ID checks to operate, industry standards for “know-you customer” are different. This is worrying news for regulators, who consider crypto a way to illicitly cash.

Crypto experts and those who are anti-money laundering specialists said they may be able to use so-called privacy currencies (a type of cryptocurrency that hides more information than bitcoin) to send funds. These coins are believed to offer greater privacy and protection against intrusive surveillance by governments.

ROUBLES RUSHED OUT

Russian businesses and households have been rushing to convert their roubles into foreign currencies, after the record-breaking 110/110 ratio against the dollar hit Wednesday.[

There are signs too that suggesting that people are scrambling to covert savings to crypto – trading volumes between the rouble and cryptocurrencies hit 15.3 billion roubles ($140.7 million) on Monday, a three-fold jump from a week earlier, according to researcher CryptoCompare.

The spike has worried regulators, with the European Commission looking at whether crypto is being used to get around sanctions, an EU official said on Wednesday.

The U.S. Treasury and Britain’s financial watchdog did not respond to requests for comment for this story.

The crypto exchanges’ stance goes against that of several traditional payment companies and fintech firms that have responded to sanctions by restricting services in Russia.

Payments company Wise and remittance processor Remitly have, for instance, suspended money-transfer services in Russia, while Apple Inc (NASDAQ:) limited use of Apple Pay.

U.S. payment card giants Visa Inc (NYSE:) and Mastercard Inc (NYSE:) also blocked multiple Russian financial firms from their networks.

‘LIBERTARIAN VALUES’

Ukraine’s Vice Prime Minister Mykhailo Fedorov on Sunday asked crypto exchanges https://twitter.com/FedorovMykhailo/status/1497922588491792386 to block the digital wallet addresses of Russian users, a move that would effectively stamp out their ability to trade crypto.

Kraken CEO Jesse Powell said he would not acquiesce https://twitter.com/jespow/status/1498112741684363265, calling bitcoin the “embodiment of libertarian values.”

Blocking users from an entire country “does not necessarily punish those who are actually responsible and who may have already prepared for the possibility of blanket sanctions,” a Kraken spokesperson said.

Kraken complies with legal and regulatory requirements of all jurisdictions where it operates, they added.

Binance, the world’s largest crypto exchange, also refused to ban all Russian users but says it is blocking the accounts of any clients targeted by sanctions. “Crypto was meant to provide greater financial freedom for people across the globe,” it said on Monday.

Binance accounts for over 40% of all crypto trades in roubles, CryptoCompare said. A Binance spokesperson declined to comment on the figure, or give details of any sanctioned users it had blocked.

U.S. cryptocurrency exchange Coinbase Global Inc too said it would not impose a blanket ban on transactions involving Russians, though it would block accounts of those targeted by sanctions.

Yet continuing to operate in Russia likely poses risks for exchanges themselves, warned Joby Carpenter, a specialist in crypto and illicit finance at the Association of Certified Anti-Money Laundering Specialists.

“Exchanges and, ultimately, banks where cryptoassets off-ramp will need to be alert to these efforts to avoid breaching sanctions or terrorism legislation,” Carpenter said.