Cryptocurrencies have characteristics that naturally can prevent a country from adopting traditional ways to circumvent economic sanctions like the ones Russia is having for having invaded ukraine. And one of these traditional ways is to launder fiat currency, the official ones that central banks issue, through financial institutions. The opinion is from Paul Grewal, head of legal at Coinbase.
In addition to the characteristics of cryptocurrencies such as transaction visibility, Russia would need to make high transactions to replace fiat currency with digital currencies, the US government pointed out.
Grewal’s opinion comes days after it was reported that the United States government wanted to sanction the use of cryptocurrencies in Russia as well. And that, at the same time, it was tracking crypto transactions by Russian oligarchs and government to lock down their assets. All part of the sanctions for the invasion of Ukraine.
According to the Chief Legal Office (CLO) of the largest cryptocurrency exchange in the United States (USA), these transactions to evade sanctions use shell companies in tax havens and have non-transparent corporate structures. In addition, they make a series of moves.
“In this way, they create complex financial trails that are difficult to trace. Therefore, investigators are required to request information separately from various financial institutions. And they have to follow a trail in different countries, some of which refuse to cooperate or take years to pass on information.” Digital asset transactions are tracked, permanently recorded and public,signed in an article on Coinbase’s Medium profile.
Cryptocurrencies would be difficult tool against sanctions
Coinbase, for example, did an analysis of blockchain networks and identified more than 16,000 addresses that possibly have association with Iranian exchanges. Many that no one had yet identified. “We use this analysis to strengthen our compliance systems and inform law enforcement to improve industry knowledge,” he said. Iran has been under a US economic embargo since 1979.
As I said Carole House, Director of Digital Security at the US National Security Council, “the scale at which Russia would have to evade US sanctions and financial institutions would almost certainly make cryptocurrencies ineffective as a primary tool for the country.” One of the problems is that the Russian government and those who are going to be sanctioned would need to buy quantities that don’t even exist on the market to evade the sanctions.
The Russian central bank has $630 billion in fixed assets, which is about 85% of bitcoin’s current market value. The crypto price this morning is around $38,670. Relative to ethereum, reserves are more than double the cryptocurrency’s market cap. And it is 5 to 10 times the total trading volume of digital assets, that is, it is practically impossible to move cryptos in high amounts easily and unnoticed.
Cryptocurrencies facilitate dribbling investigations
Gewal also points out that on public blockchains, such as bitcoin and ethereum, information such as day, time, currency type, value and wallets are visible. Therefore, “these are advantages for investigations and law enforcement that simply do not exist with cash or multi-country transactions.” Apart from the question that it is impossible to destroy this data.
Despite this, there are mixed views in the cryptocurrency community as to whether the industry should apply sanctions in Russia. This is because it is a decentralized system that, in general, bypasses the central authorities. And its aim is to give freedom to citizens.