Stock Groups

Bitcoin sanctions could be next as DOJ unveils crypto crackdown plans


Pro-Russian separatists are seen next to an abandoned tank on a road between the separatist-controlled settlements of Mykolaivka (Nikolaevka) and Buhas (Bugas), as Russia’s invasion of Ukraine continues, in the Donetsk region, Ukraine March 1, 2022.

Alexander Ermochenko | Reuters

As Moscow’s war on Ukraine rages on and the Russian economy — and currency — spiral to new lowsWashington, Washington reportedly trying out a new wayTo increase the pressure on Putin sanctions targeting cryptocurrencies like bitcoin ethereum.

On Wednesday morning, the Department of Justice declared a new task forceThe main purpose of the sanctions enforcement plan is broad. It will also target those who use cryptocurrency to avoid U.S. sanctions or launder foreign corruption proceeds, as well as evade U.S. military attacks.

Taking aim at Russia’s access to digital cashAs the U.S. (and its allies including the notoriously neutral Switzerland), prepare to invade, levy heavy punitive measuresMoscow

There is concern that the Kremlin and other supporting actors in the Ukrainian offensive will be able to evade sanctions via digital tokens. These tokens are not issued or owned by any central authority, such as a bank. Bitcoin, as with most crypto currencies, is not regulated and has no borders. The digital currency is also resistive because it doesn’t have a central authority to stop transactions.

The invasion of Ukraine by Russia on February 24, 2004 stats from crypto data provider KaikoIt was shown that bitcoin transactions in centralized exchanges using the Russian ruble or the Ukrainian hryvnia soared to new heights over the past few months. This is likely part of the reason why Ukraine asked all the top crypto exchanges to ban Russian users — a request that has been rejected by many major playersThey argue that a move such as this would be against cryptocurrency’s very existence.

Despite growing signs of crypto adoption — as well as dialed-up rhetoric from world leaders about banning sanctioned Russians from digital currency exchanges — crypto as a pathway to sidestepping sanctions isn’t really a viable option at scale.

Crypto markets have thin liquidity, and transactions can be traced via the public blockchain ledger. CNBC has heard from experts that there are other ways that bitcoin can be used to circumvent financial restrictions around the world.

“The size and scale of crypto markets — and their state of liquidity — is not sufficient enough to offset what happens from banking disruptions and other disruptions from sanctions,” said Yaya Fanusie, a fellow at the Center for a New American Security who assesses national security and money laundering risks related to digital assets.

He said, “It’s similar to, if somebody were to block you paycheck for a whole month then you would have to rely upon your piggy banks to make up the difference.”

Russia is not an exception to the sanctions

Russia isn’t afraid of sanctions. Russia’s political class spent many years devising workarounds.

After Russia annexed Crimea, Ukraine in 2014, Moscow was subject to international condemnation. This was the same year that an airliner carrying passengers from the Netherlands to Malaysia crashed. shot down by a Russian-made surface-to-air missile fired over territory held byUkrainian separatists pro-Russian.

Putin created buffers since to shield Russia against the blowback from Western sanctions. According to economists, this is estimated at having cost Russia around $1.5 trillion. cost Russia $50 billion a year.

A government will typically create a list of individuals or companies to avoid, and then those who trade with the banned entities face severe fines. However, sanctions can only be as effective as KYC (Know Your Customer), onboarding requirements. Sarah Beth Felix is an expert on sanctions compliance and anti-money laundering.

Felix affirms that the degree of stringency will determine the effectiveness or ineffectiveness of the sanctions. “That is agnostic when it comes to the underlying flow of funds, whether it be crypto, fiat, wires, payable-through accounts — it all lives or dies on the underlying data that’s captured and verified on the ownership of the company, the individual, and all that kind of stuff.”

Putin’s strategy also included diversifying away U.S. Treasuries, the U.S. dollars and creating a new form of debt structure mostly based upon euros and gold. Putin’s war bank includes $630billion in foreign reserves. This serves as an insurance policy to reduce the negative impact of harsh sanctions.

Russia’s fundamental financial principles have helped absorb the shock. CNBC reported Russia’s debt-to GDP ratio at only 18%. The country also has a surplus in its current accounts, with the oil price surging to $113 per barrel.its highest level in more than a decadeIt is a great boon. The White House so far has steered clear of sanctioningRussian oil sales

CNBC also heard experts say that Russians had been preparing for such a crackdown for several months.

Salman Banaei (head of North American Chainalysis’ public policy), stated that Russia’s financial and elite authorities had been planning for the imposition of sanctions for some time. The company specializes in the tracking of activity on Blockchain networks.

Felix acknowledged that any movement of funds occurred likely before Russia invaded.

Felix said, “I assume that billions or billions of dollar have been transferred through these shell corporations and front companies around the globe that we own by Russian businessmen and individuals,”

Banaei says that it’s not likely that designated individuals would want to carry large quantities of crypto around at this moment. Banaei argues that, if cryptocurrency were being used for evading sanctions, this would likely have been done slowly and over the last several months. 

Felix explained that “At all times, there is a glaring gap in transparency about who owns which companies, not only in the U.S. but worldwide.”

Bitcoin won’t work anyhow

Russia could not use crypto to avoid sanctions. Its economy and crypto market are too large, so any transactions exceedingly large would be flagged.

Fanusie said that the size of crypto-markets is very small in comparison to banking activity.

New equity and debt restrictions have been placed by the U.S. on certain Russian state-owned companies. estimated assets of nearly $1.4 trillion. The U.S. stock market is not a viable source of capital for these entities. These entities won’t be able to raise money through the U.S. market, a critical source of capital. total cryptocurrency market cap isAround $1.9 Trillion

Also, cryptocurrencies can be difficult to trade. This makes it hard for large quantities of digital tokens like Bitcoin to become widely traded. The bitcoin-ruble pairing maxes out at about $250,000 per tradeBinance the world’s biggest cryptocurrency exchange, Comparable to the U.S. Dollar and bitcoin pairings, which have a maximum market order of around $2.6 million.

CNBC hears from Delston that Russian officials would require a larger transaction volume than what individuals in Russia might do right now. This would not only be difficult due to liquidity constraints, but it might also flag the transaction as unsuitable.

Delston stated that the amount of the transaction can be seen immediately on the blockchain. This would make it very obvious to anybody looking. He also said that cryptocurrency isn’t as anonymous as they seem to be.

Crypto has the benefit of not involving wire transfer from one bank to another (which are tightly regulated to avoid sanctions compliance), but every transaction is recorded on a permanent and public blockchain ledger that can be traced back in nanoseconds.

Felix stated, “If you hand me $5, it’s impossible to trace back to me.”

Chainalysis’ Banaei explains to CNBC, that while one tip on the cryptocurrency market could uncover a network in bitcoin fraud and money laundering in a matter of hours, a tip about a bank wire might take several months.  

Although there is no shortage of them, privacy tokens likeMonero, dash and zcash have an additional anonymity. They tend to not be as liquid than other tokens since most regulated exchanges do not list them because of regulatory concerns.

It is not clear what to do after you get the crypto.

CNBC’s Delston says that it is difficult to purchase large quantities of cryptocurrency. According to Delston, he does not know of major electronics or food exporters that accept cryptocurrency. He also notes that there are no spare parts companies that take bitcoin as payment. These items, he says, “all the things that Russia would require, since it can’t make it itself.”

Fanusie claims that crypto exchange compliance has been poor in the past with global sanctions. However, this is changing as platforms increase their compliance departments.

The federal prosecutors have added muscle to their crypto-policing duties. The U.S. Justice Department unveiledA new team for cryptocurrency enforcement.

A digital ruble might be a better idea.

Fanusie says that while there is a lot of focus on the possibility for Bitcoin to enable sanctions evasion but the real story lies in what sanctioned actors do with central bank digital currency, or CBDCs.

Bank of Russia published a consultation paper for a “digital ruble”Elvira Nabiullina, Central Bank Governor, said that in Oct. 2020 the country would be plans to prototype and pilot itThis year.

The digital ruble would be a virtual version of the country’s national currency that — similar to China’s digital yuan — would be controlled centrally by the Bank of RussiaUse some type of distributed ledger technology.

When it was first made public, a Moscow newspaperAccording to officials, a digital currency would reduce the dependence on dollars and also help mitigate any exposure to sanctions.

Michael Greenwald, a former U.S. Treasury official was alive and well before Russia invaded Ukraine. told CNBCThe U.S. could be affected by a digital ruble

“What worries me most is that Russia, China and Iran create digital currencies for central banks to function outside of the US dollar,” he stated. It would alarm.