The United States Take Aim at Russian Cryptocurrencies

US Lawmakers Crypto Scrutiny

The war in Ukraine has entered its eighth day and western countries have levied a comprehensive package of sanctions against Russia for the invasion, following initial underwhelming reaction.

These measures include sanctions against the Russian central bank and the exclusion of important Russian banks from the SWIFT international banking system, but there are concerns that these measures may be dodged through the use of cryptocurrencies. ^[1]

US Democratic Senator Elizabeth Warren who seat's in the Banking, Housing, & Urban Affairs Committee- and two of her colleagues - sent a letter to the US Treasury on Wednesday, expressing concerns regarding the potential use of Cryptocurrencies to evade sanctions. ^[2]

The Senators noted in their letter to Ms Yellen that "Strong enforcement of sanctions compliance in the cryptocurrency industry is critical given that digital assets, which allow entities to bypass the traditional financial system, may increasingly be used as a tool for sanctions evasion".

They also inquired about the Treasury's progress in monitoring and enforcing sanctions compliance by the cryptocurrency industry and requested responses to their questions no later than March 23, 2022.

Via a twitter post earlier in the week, Senator Warren had called on financial regulators in the US to take the threat seriously and increase their scrutiny of digital assets. ^[3]

Ms Yellen's successor at the helm of the Fed, Mr Powell, was asked about how Russia could use Cryptos to work its way around the sanctions, by Congressman Vargas during his testimony yesterday.

The Fed Chair clarified that he does not know the extent to which that is happening, but noted that "it underscores the need really for Congressional action on digital financing including Cryptocurrencies". ^[4]

US DOJ Targeting Russian Cryptos

In this backdrop, the US Department of Justice (DOJ) announced on Wednesday a task force to go after corrupt Russian oligarchs, with US President Biden twitting that "We are joining with our European allies to find and seize their yachts, their luxury apartments, their private jets". ^[5]

The task force is dedicated to "enforcing the sweeping sanctions, export restrictions, and economic countermeasures that the United States has imposed" against Russia or invading Ukraine. ^[6]

Attorney General Merrick B. Garland said "The Justice Department will use all of its authorities to seize the assets of individuals and entities who violate these sanctions".

Among other things, the task force will be targeting efforts to use cryptocurrency to evade U.S. sanctions, launder proceeds of foreign corruption, or evade U.S. responses to Russian military aggression.

The United States however, are not alone in this, since Europe's economy and finance ministers agreed yesterday to further investigate actions to avoid any circumvention of the sanctions, especially by the use of crypto assets. ^[7]

During the relevant press conference, French Minister of the Economy and Finance, said that "we are taking measures in particular on cryptocurrencies or cryptoassets, which should not be used to circumvent the financial sanctions decided upon by the 27".

Ukraine's Call For Crypto Block

This scrutiny comes a few days after Ukraine's Vice Prime Minister and Minister of Digital Transformation, Mykhailo Fedorov called on all major crypto exchanges to "block addresses of Russian users", noting that "It's crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users". ^[9]

Crypto exchanges did not seem very willing to adhere by this request, with Kraken CEO Jesse Powell, replying to Mr Fedorov's tweet that his firm "cannot freeze the accounts of our Russian clients without a legal requirement to do so". ^[10]

Binance had published a statement saying it would not unilaterally freeze millions of innocent users, as reported by the BBC. ^[11]

Cryptocurrencies

Despite intentions to control Russian cryptocurrencies, the crypto market is decentralized, making this undertaking quite difficult.

FXCM's CryptoMajor basket faces some pressure today, pausing its seven-day profitable streak.