Pro-Russian separatists are seen next to an abandoned tank on the road between the separatist-controlled settlements of Mykolaivka (Nikolaevka) and Buhas (Bugas), as Russia continues its invasion of Ukraine , in the Donetsk region, Ukraine on March 1, 2022.
Alexander Ermochenko | Reuters
As Moscow’s war over Ukraine flared up and the Russian economy – and currency – spiraling to new lowsWashington is reported to be trying a new way to increase pressure on Putin: targeted punishment Cryptocurrencies like bitcoin and ethereum.
The Ministry of Justice announced early Wednesday a new task force widely designed to enforce sanctions. As part of that, it will target attempts to use cryptocurrencies to evade US sanctions, launder corrupt money abroad, or evade US responses to aggression. of the Russian army.
Towards Russia’s goal of reaching digital cash until the United States and its allies, including the famously neutral Switzerland, hit the heavy sanctions against Moscow.
The worry is that the Kremlin, as well as other ancillary organizations supporting the attack on Ukraine, will evade the sanctions regime through digital tokens, which are not owned or issued by central authority such as a bank. Bitcoin, like most cryptocurrencies, is decentralized and borderless, which means it doesn’t respect national boundaries. Because there is no central authority to block transactions, digital currencies are also resistant.
Since Russia invaded Ukraine on February 24, statistics from crypto data provider Kaiko shows that transactions on centralized bitcoin exchanges denominated in both Russian rubles and Ukrainian hryvnias surged to multi-month highs. This may be part of the reason why Ukraine is asking all the top crypto exchanges to ban Russian users – a requirement that has been rejected by many big playerswho argue that such a move would go against the very reason why cryptocurrencies exist.
Despite the growing signs of crypto adoption – as well as rhetoric from world leaders about banning sanctioned Russians from crypto exchanges – cryptocurrency as an avenue to bypass sanctions is not really a viable option on a large scale.
First of all, the cryptocurrency market offers low liquidity and token transactions are, by design, traceable through a public ledger known as the blockchain. Besides, experts told CNBC that there are ultimately better and smarter ways to use bitcoin to bypass global financial blockades.
Yaya Fanusie, a fellow at the Center for a New American Security who assesses the security and money laundering risks associated with digital assets.
“It’s like, if someone blocked your paycheck for a month and then you have to rely on your piggy bank to make up,” he said.
Russia is no stranger to sanctions
Russia is no stranger to sanctions, and its political class has spent years inventing solutions.
Moscow faced international condemnation in 2014 after Russia annexed Crimea from Ukraine. That was also the year that a passenger plane traveling from the Netherlands to Malaysia was shot down by a Russian-made one surface-to-air missile shoot over territory due to pro-Russian separatists in eastern Ukraine.
Since then, President Putin has built buffer zones to insulate Russia from the impact of Western sanctions, which economists estimate. costs Russia 50 billion dollars a year.
Usually, the way sanctions work is that the government puts together a list of individuals and companies to avoid, and those who do business with these prohibited entities face hefty fines. But sanctions are only as good as KYC (Know Your Customer) accession requirements, explains Sarah Beth Felix, an authority on anti-money laundering and sanctions compliance.
“Depends on how rigorous that is,” says Felix. “That’s just impossible when it comes to underlying cash flow, whether it’s crypto, fiat, wire, checking accounts – it’s all life or death based on collected and verified underlying data. about corporate ownership, individuals and all that.”
Part of Putin’s strategy involves diversifying US coffers and US dollars, building a new type of debt structure based primarily on euros and gold. Putin’s war stock includes $630 billion in foreign exchange reserves, which act as a kind of financial shield to cushion the impact of sweeping sanctions.
The country’s financial fundamentals have also helped cushion the shock. CNBC reported that Russia has a debt-to-GDP ratio of just 18 percent, a current account surplus, and oil prices surged past $113 per barrel (the highest level in more than a decade) is definitely a benefit. So far, the White House has avoid punishment Sell Russian oil.
Furthermore, experts tell CNBC that the Russians have been preparing for this kind of crackdown for months.
“Russian financial and elite agencies have been preparing for sanctions for some time,” said Salman Banaei, North America’s head of public policy for Chainalysis. specializes in tracking activity on the blockchain network.
Felix agrees to any possible transfers before the Russian invasion.
“I assume that trillions of dollars have been passed through the front companies and shell corporations that we have around the world that are owned by Russian businesses and individuals, whatever it is related to. to cryptocurrencies or regular bank transfers,” Felix.
Banaei agrees that it is unlikely that the appointees will choose to move large amounts of cryptocurrencies at this time. Instead, Banaei said that if the cryptocurrency is being used to evade sanctions, it will likely happen slowly over the past few months.
“Ultimately, the big, obvious gap that we have is the transparency of who owns which companies, not just in the US but around the world,” explains Felix.
Bitcoin won’t work.
Even if Russia wants to use crypto to evade sanctions, its economy is too big, the crypto market is too small, and any large transaction 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 equity restrictions on some of Russia’s most important state-owned enterprises with estimated assets of nearly $1.4 trillion. These institutions will not be able to raise money through the US market, an important source of capital. The the total crypto market cap is about $1.9 trillion.
Cryptocurrencies are also thinly traded, meaning that large amounts of digital tokens like bitcoin can be difficult to buy. Bitcoin-rule pair up to about $250,000 per transaction on Binance, The world’s largest cryptocurrency exchange, against the bitcoin and US dollar pair, there is a maximum market order about 2.6 million dollars.
Delston told CNBC that the size of the transactions the Russian government would need to make would be many times what individual Russian citizens might be doing right now. Not only does that prove to be difficult to do in terms of liquidity caps, it can also mark a trade outright.
“On the blockchain, the size of the transaction is immediately available, and the transactions are very large that will be very obvious to anyone looking at them,” Delston said, adding that cryptocurrencies are not a cornerstone of secrecy. names for which they are normally created.
While cryptocurrencies have the advantage of not involving bank transfers from one bank to another (strictly controlled to ensure compliance with sanctions), every transfer ever made is recorded on a public, permanent and immutable blockchain ledger and can be traced in nanoseconds.
“If I give you a $5 bill you can never trace me back, if I transfer you money through my wallet the money is always linked back to my wallet ID, which, if I do a regulated exchange, has all of my CIP (Customer Identification Program) information,” explains Felix.
Chainalysis’ Banaei told CNBC that a single tip in the crypto market can, within hours, uncover a network of wallet addresses involved in ransomware fraud and money laundering, while a similar trick Similar to traditional bank transfers, it can take several months to reach the same level of visibility as a criminal network and its money laundering.
While there privacy token like monero, dash, and zcash, with built-in anonymity, they tend not to be as liquid as other tokens, as many regulated exchanges have chosen not to list them due to concerns about regulation.
There is also the question of what to do when you have crypto in hand.
“It’s hard to buy things with crypto, especially big things,” Delston told CNBC. He said he doesn’t know of any major electronics companies, food exporters or spare parts manufacturers that accept crypto payments, which he notes are “all those something a country like Russia needs, because it’s not self-produced.”
And while crypto exchanges’ compliance with the global sanction regime hasn’t been great historically, Fanusie says it’s actually getting much better, as these platforms grow. strengthen their internal compliance team.
Federal prosecutors are also adding muscle to their crypto regulatory duties. In February, USA Ministry of Justice announced a new crypto enforcement team.
What about a digital ruble?
While a lot of attention has been paid to bitcoin’s potential to facilitate sanctions evasion, the bigger story for Fanusie is what sanctioned parties are doing with the bank’s digital currency. central bank, or CBDC.
Issued by the Central Bank of Russia an advisory article for a “digital ruble” in October 2020, and Central Bank Governor Elvira Nabiullina said the country plan to prototype and test it This year.
The digital ruble will be a virtual version of the country’s national currency that – similar to China’s digital yuan – will centrally controlled by the Central Bank of Russia and use some form of distributed ledger technology.
At the time it was first announced, a Moscow newspaperCiting officials, a digital ruble would both reduce dependence on the dollar and reduce the likelihood of sanctions.
Before Russia invaded Ukraine, former US Treasury official Michael Greenwald told CNBC that a digital ruble could prove problematic for the US
“What worries me is if Russia, China and Iran create central bank digital currencies to work outside of the dollar and other countries follow them,” he said. “That would be alarming.”
