The heavy sanctions on Russia extend to crypto, and here is a deep dive into the legal infrastructure behind them.
In her monthly Expert Take column, Selva Ozelli, an international tax attorney and CPA, covers the intersection between emerging technologies and sustainability, and provides the latest developments around taxes, AML/CFT regulations and legal issues affecting crypto and blockchain.
According to the United Nations High Commissioner for Refugees, also known as the UN Refugee Agency, nearly 4 million Ukrainians have fled their homes since bombs began falling and bullets started flying on Feb. 24, with most heading to neighboring Central European countries. At the same time, people around the world have sent over $100 million in crypto donations to support Ukraine, according to Alex Bornyakov, deputy minister of digital transformation. This necessitated Ukrainian President Volodymyr Zelenskyy to sign a bill legalizing crypto on March 16.
Robby Houben, a professor at the University of Antwerp who co-authored a study for the European Parliament about the illicit use of cryptocurrencies and blockchain, published an article on March 1 titled “Crypto-assets as a blind spot in sanctions against Russia?” in which he urges crypto sanctions be implemented to further dry up funding for Russia’s invasion of Ukraine. After all, Russia has been leading a multinational stablecoin initiative with BRICS (Brazil, Russia, India, China and South Africa) and Eurasian Economic Union countries. This year, the initiative is scheduled to issue central bank digital currencies (CBDCs) that will be exchanged on smartphones, outside of the SWIFT and CHIPS systems.
The Bank of International Settlement reported on March 22 that “Project Dunbar” — a collaboration with the central banks of Australia, Malaysia, Singapore and South Africa — has confirmed that cross-border CBDC payments are technologically possible.
Related: Russia leads multinational stablecoin initiative
“Numbers show that crypto-assets are already quite widely adopted in the region, and the scenario is therefore definitely not utopian,” Houben emphasizes in his article. The Russian government has estimated that at least $200 billion worth of crypto, or 12% of the overall market, is held by Russians. Blockchain analytics platform Elliptic has identified more than 400 virtual asset service providers where one can use rubles to purchase cryptocurrencies, hundreds of thousands of crypto addresses linked to sanctioned Russia-based individuals or entities, and 15 million Russian crypto addresses involved with illicit transactions. Adam Zarazinski, CEO of Inca Digital — which provides digital asset data and analytics technology to the United States Commodity Futures Trading Commission and Department of Defense — explained to me:
“Since the Ukrainian invasion by Russia on Feb. 24, on Binance, BTC/RUB trades increased about tenfold, and USDT/RUB trades increased about sevenfold and then begin to drop on March 7 when Visa and Mastercard pulled out of Russia. Similarly, Russian Google searches for how to convert rubles to Tether increased fivefold during the same period.”
With the Swiss government taking the lead on March 4, a wave of synchronized sanctions that extend to crypto began falling on Russia. On March 5, Singapore followed suit. Then came the European Union on March 9. And on March 11, the Group of Seven (G7) countries — including Canada, France, Germany, Italy, Japan, the United Kingdom and the United States — instituted sanctions “to hold Putin accountable for his continued assault on Ukraine and further isolate Russia from the global financial system.”
Given that crypto regulation is still being contemplated by many of the countries that imposed these sanctions, I wondered whether their legal infrastructure would allow for their implementation when it comes to cryptocurrencies. Here is what I found:
In her monthly Expert Take column, Selva Ozelli, an international tax attorney and CPA, covers the intersection between emerging technologies and sustainability, and provides the latest developments around taxes, AML/CFT regulations and legal issues affecting crypto and blockchain.
According to the United Nations High Commissioner for Refugees, also known as the UN Refugee Agency, nearly 4 million Ukrainians have fled their homes since bombs began falling and bullets started flying on Feb. 24, with most heading to neighboring Central European countries. At the same time, people around the world have sent over $100 million in crypto donations to support Ukraine, according to Alex Bornyakov, deputy minister of digital transformation. This necessitated Ukrainian President Volodymyr Zelenskyy to sign a bill legalizing crypto on March 16.
Robby Houben, a professor at the University of Antwerp who co-authored a study for the European Parliament about the illicit use of cryptocurrencies and blockchain, published an article on March 1 titled “Crypto-assets as a blind spot in sanctions against Russia?” in which he urges crypto sanctions be implemented to further dry up funding for Russia’s invasion of Ukraine. After all, Russia has been leading a multinational stablecoin initiative with BRICS (Brazil, Russia, India, China and South Africa) and Eurasian Economic Union countries. This year, the initiative is scheduled to issue central bank digital currencies (CBDCs) that will be exchanged on smartphones, outside of the SWIFT and CHIPS systems.
The Bank of International Settlement reported on March 22 that “Project Dunbar” — a collaboration with the central banks of Australia, Malaysia, Singapore and South Africa — has confirmed that cross-border CBDC payments are technologically possible.
Related: Russia leads multinational stablecoin initiative
“Numbers show that crypto-assets are already quite widely adopted in the region, and the scenario is therefore definitely not utopian,” Houben emphasizes in his article. The Russian government has estimated that at least $200 billion worth of crypto, or 12% of the overall market, is held by Russians. Blockchain analytics platform Elliptic has identified more than 400 virtual asset service providers where one can use rubles to purchase cryptocurrencies, hundreds of thousands of crypto addresses linked to sanctioned Russia-based individuals or entities, and 15 million Russian crypto addresses involved with illicit transactions. Adam Zarazinski, CEO of Inca Digital — which provides digital asset data and analytics technology to the United States Commodity Futures Trading Commission and Department of Defense — explained to me:
“Since the Ukrainian invasion by Russia on Feb. 24, on Binance, BTC/RUB trades increased about tenfold, and USDT/RUB trades increased about sevenfold and then begin to drop on March 7 when Visa and Mastercard pulled out of Russia. Similarly, Russian Google searches for how to convert rubles to Tether increased fivefold during the same period.”
With the Swiss government taking the lead on March 4, a wave of synchronized sanctions that extend to crypto began falling on Russia. On March 5, Singapore followed suit. Then came the European Union on March 9. And on March 11, the Group of Seven (G7) countries — including Canada, France, Germany, Italy, Japan, the United Kingdom and the United States — instituted sanctions “to hold Putin accountable for his continued assault on Ukraine and further isolate Russia from the global financial system.”
Given that crypto regulation is still being contemplated by many of the countries that imposed these sanctions, I wondered whether their legal infrastructure would allow for their implementation when it comes to cryptocurrencies. Here is what I found: