Crypto is a major option for Russian sanction avoidance

Rapidly evolving technology in the crypto sector can be of use to Russia as a way of circumventing NATO financial sanctions. Being cut off from the world financial system appears to carry less of a threat than in the past, given that crypto is outside of the system and generally beyond the powers of governments to seize or freeze.

Even up to the end of 2021, the Russian central bank appeared to be following a fairly similar path to most other central banks, in that it espoused a central bank digital currency CBDC, and its negative stance on cryptocurrencies was de rigueur.

However, that all changed when Russia’s finance ministry began lobbying the government to legalise crypto assets, a completely different stance from that of before. Then when prime minister Vladimir Putin came out on the side of the finance ministry, the matter was quickly resolved in favour of crypto.

As current events unfold in the Russian invasion of Ukraine, it is becoming clear that Putin had crypto in mind all along as an extremely useful tool to help him to evade a lot of the financial sanctions that he knew would be coming his country’s way.

The fact that the US would not be prepared for this was admitted by ex Treasury sanctions czar, Stuart Levey, who stated in an article in the Politico magazine:

“I don’t think that we’re where we need to be in terms of preventing individuals who are subject to sanctions from moving value and operating using the pseudonymity of cryptocurrency. I don’t think that we in the U.S. have fully grappled with that risk.”

In the article, the author succinctly put forward how sanctions could be blunted by the use of crypto:

“Rapidly evolving digital markets have created new ways to subvert heavy-duty penalties that were designed to cut off wealthy Russians and state-backed institutions from the U.S. financial system in the aftermath of the invasion of Ukraine. With Moscow now a hotbed for high-risk exchanges and mixing services — which scramble the ability to track the flow of transactions on public blockchains — crypto marketplaces could blunt attempts to freeze Russian assets.”

Sectors within crypto, such as decentralised finance, could well be used by Russia. DeFi features peep-to-peer networks that enable a user to transfer assets without touching any third party intermediaries. 

Services such as mixers might also be used, but given the sheer amount of money that would have to be moved, blockchain analytics companies such as Chainalysis could very possibly identify the fingerprints of such large money movements. Off-ramping the crypto into fiat currency afterwards may also be problematic.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.