Fears Russia Will Use Crypto to Bypass Sanctions 'Totally Unfounded,' Expert Says

Concerns by prominent politicians that Russia is using cryptocurrencies to circumvent economic sanctions are “completely unfounded,” crypto policy experts believe.

They said the crypto market is neither large nor deep enough to support Russia's needs, and the country's digital asset infrastructure is also very weak.

Former U.S. Secretary of State Hillary Clinton and current European Central Bank President Christine Lagarde are among high-profile figures concerned that cryptocurrencies could offer Russia a means to bypass tough financial sanctions imposed over its invasion of Ukraine.

The country has been largely cut off from the SWIFT cross-border trading system, and businesses in the United States and other Western countries are banned from doing business or transacting with Russia's banks and state wealth funds.

On March 2, Jake Chervinsky, head of crypto policy outreach for the American Blockchain Association, published a long thread on Twitter explaining that “Russia cannot and will not use cryptocurrencies to circumvent sanctions.”

Russia cannot and will not use cryptocurrencies to circumvent sanctions.

Concerns that cryptocurrencies are being used to circumvent sanctions are completely unfounded. They fundamentally misunderstood:

- How sanctions work

- How the Crypto Market Works

- How Putin is actually trying to ease sanctions

i will explain

— Jake Chervinsky (@jchervinsky) March 1, 2022

Chervinsky laid out three reasons why Russia is unlikely to use cryptocurrencies to circumvent U.S. sanctions. First, the sanctions are not limited to the dollar, it is now illegal for any US business or citizen to do business with Russia. "It doesn't matter if they use dollars, gold, seashells or bitcoin," he said.

The second reason is that the financial needs of a country like Russia far outstrip the capabilities of the current crypto market, which Chervinsky says is “too small, too costly, and transparent to be useful for the Russian economy.” In other words, even if Russia had access to sufficient liquidity, it would still not be able to hide its transactions in such a market.

In the end, the country spent years trying to "prevent sanctions" on its own, but failed to build any meaningful encryption infrastructure or even finalize encryption regulations. Chervinsky said that cryptocurrencies do not appear to be part of Russia's plan to mitigate the impact of the sanctions.

“The truth is Putin has spent years trying to keep Russia safe from sanctions, and cryptocurrencies were not part of his plan. His strategy included diversifying Russia’s reserves into yuan and gold (rather than cryptocurrencies), Moving trade to Asia (instead of blockchain), bringing manufacturing in-country, etc.”

However, Roman Bieda, head of fraud investigations at blockchain research platform Coinfirm, told Al Jazeera on March 1 that in general, it is possible to use cryptocurrencies to "evade sanctions and hide wealth," with North Korea, Venezuela and Iran all in this way.

But other experts told the outlet that the situation in Russia is different because of the scale of the sanctions, the slow pace of cryptocurrency adoption and the lack of depth in the market.

Ari Redbord, head of legal and government affairs at cryptocurrency crime investigative agency TRM Labs, said that in this case, blockchain transparency is a natural deterrent to evading sanctions.

“Russia cannot use cryptocurrencies to replace the hundreds of billions of dollars that could be blocked or frozen.”

Cointelegraph reported on Feb. 25 that European Central Bank President Lagarde wants the European Parliament to pass the Markets in Cryptoassets (MiCA) bill as soon as possible so that European authorities can “real capture cryptoassets.” Lagarde is pushing for urgent adoption of the policies to prevent Putin from using cryptocurrencies to circumvent sanctions.

In an interview with MSNBC's Rachel Maddow this week, Hilary Clinton urged U.S. President Joe Biden to ban Russian crypto transactions. She and Maddow discussed possible national security threats in cryptocurrencies, and Clinton said: "The Treasury Department and the Europeans should seriously consider how to prevent the crypto market from providing Russia with an escape route."

“I am disappointed to see that some crypto exchanges (not all) refuse to terminate their dealings with Russia, but some of them do so for some libertarian philosophical reasons.”

Democratic Senator Elizabeth Warren also took the opportunity to say on March 1 that U.S. financial regulators should scrutinize digital assets because they could “allow Putin and his cronies to escape economic pain.”

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