Experts are looking at cryptocurrencies to bypass the blacklist after a new round of sanctions was imposed on Russian banks.
After the unprovoked invasion by Russia’s President Vladimir Putin, the US and European authorities imposed sanctions against Russian technology companies, banks and aerospace operators.
Leah Wald is the CEO of Valkyrie Investments crypto asset manager. She said that although it was not certain whether Russia would use crypto as a way to bypass sanctions, “the likelihood that they could make such an important pivot is very high.”
Legal experts warn that the use of digital assets in lieu of dollars is likely to be a violation of sanctions.
According to Evan Abrams (an attorney at Steptoe & Johnson specializing in sanctions), the Office of Foreign Assets Control is the US’ primary sanction overseer.
Abrams stated that they generally view transactions in bitcoin or other assets the same way as they view transactions in dollars.
US-based cryptocurrency exchanges must adhere to the same reporting and know your customer (KYC), regulations as banks. However, decentralized exchanges or marketplaces in other nations may be able to offer a workaround.
David Tawil, president and CEO of ProChain Capital, said that as long as the cryptocurrency is not purchased or moved by a US-regulated entity, it shouldn’t be difficult to avoid sanctions.
According to Wald, an ex-World Bank analyst, Russian financiers will find it easier to use a variety of exchanges.
Wald stated that Russian companies could use Russia-based brokers or exchanges as fiat on ramps and then transact crypto across multiple decentralized platforms or other tools to hide the source of funds. Entities that are willing to interact with them may be able to transact without real consequences.
These punitive measures are taken shortly after Russia’s Finance Ministry pushed ahead with its crypto regulatory plans. They double down on Russia’s current policy of banning cryptocurrency as a payment method. This could pose a problem for businesses trying to avoid sanctions.
Russia’s digital currency of the central bank, the under-development digital ruble could enable companies to trade legally without the dollar in an state-sanctioned way.
Wald stated that it was likely not a coincidence that Russia recently legalized cryptocurrency in an effort to standardize their regulation, usage, and use. This may have been done to counter any possible sanctions that might arise from an invasion by Ukraine.
OFAC published new guidance in October on cryptocurrency compliance and sanction compliance. This highlighted, in OFAC’s eyes the growing threat that blockchain technology poses for central control points of government governments.
Breaking OFAC sanctions without permission could result in a $20 million fine and a 30-year sentence.
Abrams stated that the severity of violations depends on whether they are against primary or secondary US sanctions. For the former, a US citizen or resident must be included in the mix.
Abrams states that OFAC does not have the legal authority to seek civil or criminal sanctions for secondary sanctions. This is because non-US citizens are allowed to operate in other countries.
He said, “But they can do it is to essentially impose sanction on those actors.” “If one person interacts with the sanctioned person, then the first person can be sanctioned in the same manner as the person they are interacting with.”
