In response to the Ukraine war, the West imposed sanctions on Russia on an unprecedented scale. Western companies leave the country and the ruble plummets. US politicians, meanwhile, are concerned that the Kremlin could use bitcoin and other cryptocurrencies to outsmart sanctions. Experts do not rate this possibility as particularly likely, but a legislative proposal by US Senator Elizabeth Warren is intended to put a stop to this.
On March 17, the crypto-skeptical senator submitted the suggestion for her “Digital Asset Sanctions Compliance Enhancement Act of 2022” along with fellow Democrats at a Bank Committee hearing. The law would allow the U.S. Treasury Department to ban transactions by domestic bitcoin exchanges with wallet addresses verified as being from Russia. Additionally, the president would have the power to take action against foreign crypto companies that help Russia circumvent the sanctions. Such companies would then have to expect their funds to be frozen. They would also be prohibited from doing business with Americans.
Controversial reporting requirement for offshore transactions
In addition, the proposed legislation would require US taxpayers to report to FinCEM all transactions with offshore companies worth more than US$10,000. The authority belongs to the US Treasury Department and specializes in combating financial crime.
At the hearing, Warren also emphasized her assessment that “cryptocurrencies represent a new payment option for criminals and fraudsters.” Consequently, it is conceivable that the law wants to strengthen the supervision of the crypto space beyond the Russian sanctions. At least the crypto think tank does Coin center warns Therefore, the law “would comprehensively restrict the crypto ecosystem under the guise of tightening sanctions against Russia for its unjustified invasion of Ukraine.”
evaluate the proposed legislation Coin center overall as “unnecessary and too broad.” It would also go against the principles of the US Constitution.
Does the Kremlin use cryptocurrencies at all?
In order to classify the proposed law, one must of course ask to what extent the Kremlin would be able to use cryptocurrencies at all. Most US experts rate this potential as rather low. FBI Director Christopher Wray said already on March 10th:
The ability of the Russians to circumvent the sanctions using cryptocurrencies is likely to be grossly overrated by them and others.
Several representatives of the crypto industry also spoke on the subject at the Senate hearing on March 17. Jonathan Levine from the blockchain analysis firm chainalysis explained that there is no evidence that “Russia or Putin are systematically using cryptocurrencies to circumvent sanctions.” Loud Bloomberg was the general perception that the crypto market was far too small to covertly make large-scale payments. Blockchain transactions can also usually be tracked.
Russia grants crypto license to Sberbank
The fact that Russia has certain crypto ambitions in the current situation is underpinned by the new crypto license that the Russian Sberbank on March 17th had received. The bank is one of the largest financial institutions in the country and is predominantly state-owned. Licensing must of course also be placed in the context of Moscow’s recent crypto course. After lengthy debates between the central bank, which was pushing for a general ban on Bitcoin, the Ministry of Finance had already prevailed in the first half of February with the proposal for the acceptance of cryptocurrencies. The compromise reached provides that the crypto business is left to specially licensed banks.
In retrospect, this change of course could perhaps also be interpreted as a measure to prepare for war. Nevertheless, it is questionable to what extent the crypto license of the Sberbank will help to circumvent sanctions. According to the bank, it wants to guarantee “the security of digital transactions using blockchain technology”. In addition, they want to adapt their own crypto business to the new regulatory reality in Russia.
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