There has been a fair amount of discussion regarding Russia using crypto to evade sanctions. First, crypto as a market is simply too small to be an effective tool for the Russian government to utilize it to mitigate the full impact of the economic blockade. But what about Russian elites, or oligarchs? Will crypto be the path for them to get around asset freezes and financial blockades?
US Senator Elizabeth Warren recently tweeted as a statement of fact that crypto is being utilized by President Vladimir Putin and his “cronies” to “evade economic pain,” pointing to an article in NYTimes.com.
Cryptocurrencies risk undermining sanctions against Russia, allowing Putin and his cronies to evade economic pain.
U.S. financial regulators need to take this threat seriously and increase their scrutiny of digital assets. https://t.co/4lCUNcUC29
— Elizabeth Warren (@SenWarren) February 28, 2022
Meanwhile, a former US Treasury Official, Michael Greenward, told CNBC that crypto is a backdoor for Russia to avoid sanctions. “They have been trying to de-dollarize for years,” said Greenward. And using digital assets is going to be a “clear pivot strategy.” Oligarchs will look to go around the dollar he declared. Regulators must “speed up cryptocurrency regulation” to not allow these evasion tactics.
It was reported this past week that the world’s largest crypto exchange – Binance would not block all activity in the Russian market – while many other global brands have excited Russia. It was reported in the Daily Mail that Binanance would not “block ordinary citizens” from accessing their accounts as this would be punishing people not targeted by the sanctions. Simultaneously, Binance noted there are plenty of other ways to avoid sanctions like precious metals and diamonds. There is always cash too.
In a blog post from yesterday (March 4), Binance founder and CEO Changpeng “CZ” Zhao defended his company’s position:
“Binance follows international sanction rules strictly. At Binance, we have assembled a dedicated global compliance task force, including world-renowned sanctions and law enforcement experts, such as Tigran Gambaryan, Matt Price, Nils Andersen-Röed, and more recently Chagri Poyraz … Binance applies the same sanctions rules as the banks, according to international standards,” CZ explained.
He added that they do not believe it is right to unilaterally freeze assets of all Russians:
“Should a bank CEO in London have the power to unilaterally decide to freeze those people’s assets? On what grounds? Just because they don’t agree with the President of their country? What happens if they also do not agree with another head of state in another country? Should they have the power to freeze all assets of citizens of that other country too? Where does this stop? For this reason, it is our understanding that we must follow international sanction lists, and not make up our own.”
CZ said that crypto is not a good way to hide transactions as “it is too traceable,” while admitting that privacy coins like Monero exist. But these cryptocurrencies tend to be outliers with too little volume to materially impact sanctions.
Binance is not alone in taking the stance that retail users should not be blocked from accessing their exchange. Kraken CEO visited with CNBC on Friday echoing his competitor’s stance.
As well, other policymakers worry that while many crypto exchanges will adhere to blocking sanctioned individuals it is not clear if smaller exchanges will do the same. Coinmarketcap tracks over 300 crypto exchanges – many with minuscule trading volume. Could these be utilized by the Oligarchs? Hard to tell. But any exchange that chose to break the sanctions would emerge as a target for closure in the long run. So chances are probably limited that these exchanges will enable to Russian elite to transact outside of global sanctions.
While some pundits and policymakers may be worried about crypto being utilized to evade sanctions, crypto has become a valued path for donations to Ukraine as well as certain NGOs in the country along with independent media covering the war. For the moment, it appears that crypto and its low friction transfers are doing more for Ukraine than any Russian oligarchs at risk of asset freezes or losing their mega yachts.
Stand with the people of Ukraine. Now accepting cryptocurrency donations. Bitcoin, Ethereum and USDT.
BTC – 357a3So9CbsNfBBgFYACGvxxS6tMaDoa1P
ETH and USDT (ERC-20) – 0x165CD37b4C644C2921454429E7F9358d18A45e14
— Ukraine / Україна (@Ukraine) February 26, 2022