US media: cryptocurrencies make it easier for Russia to evade sanctions

Recently, according to US media reports, some blockchain experts said that financial sanctions imposed by the West on Russia are becoming more and more easily circumvented, in part because Russia is adopting a large number of cryptocurrencies.

According to a report by CNN on February 24, the United States and its allies are imposing increasingly severe financial sanctions on Russian banks and "domestic oligarchs" as the situation in Ukraine deteriorates. But some experts say Russia is more likely to circumvent these sanctions than before, in part because they are increasingly using cryptocurrencies to protect their assets.

The U.S. and European Union sanctions are reportedly heavily reliant on banks to enforce, and if sanctioned businesses or individuals conduct transactions denominated in traditional currencies such as dollars or euros, banks are responsible for flagging and blocking those transactions. But cryptocurrency transaction records are kept on the blockchain’s distributed ledger, which operates almost entirely outside the confines of standard global banking.

“If the Russians decide to stop using any currency other than cryptocurrencies, they can effectively avoid almost all sanctions. I’m sure they are already doing that.” Ross S. Delston, an anti-money laundering compliance expert Express.

In response, U.S. Treasury officials also warned in a report that cryptocurrencies could “impair U.S. sanctions capacity” by allowing bad actors to hold and transfer funds outside the traditional financial system. "We note that, if left unchecked, these cryptoassets and payment systems could compromise the effectiveness of our sanctions," the report reads.

For example, according to research by blockchain data analysis firm Chainalysis, parts of Eastern Europe that have been heavily sanctioned in recent years have had one of the highest volumes of cryptocurrency transactions linked to criminal activity. Here, the sites used for illicit transactions, known as the "dark web," saw a record $1.7 billion in 2020 inflows of cryptocurrencies, mostly bitcoin. Almost all of the growth in transactions in the region’s darknet markets that year can be attributed to Hydra, a Russian darknet platform. In a report in early February, Chainalysis noted that Hydra is "by far the largest darknet marketplace in the world, accounting for more than 75 percent of global darknet marketplace revenue in 2020."

However, Durston also pointed out that simply swapping all dollar-denominated assets for bitcoin is not enough to completely circumvent sanctions. He said many things are difficult to buy and sell through cryptocurrencies alone, especially commodities. For example, in the food import sector, which Russia relies on, foreign food exporters will only accept the US dollar as the global reserve currency for transactions, not cryptocurrencies, whose prices fluctuate every moment.

In addition, Durston said that since Bitcoin and other cryptocurrencies can be traced on the blockchain, money laundering and other activities are difficult to do without leaving a trace, so “crypto is not a complete perfection for Russian oligarchs. s solution".