Experts on crypto policy argue that concerns expressed by high-profile politicians about Russia evading economic sanctions using cryptocurrency are “totally unfounded.”
They say the crypto market is not nearly large enough nor deep enough to support the volume that Russia needs and that the country’s digital asset infrastructure is minimal.
Former United States Secretary of State Hillary Clinton and European Central Bank President Christine Lagarde are among the high-profile figures concerned that cryptocurrency could provide the means for Russia to bypass severe financial sanctions imposed for its invasion of Ukraine.
The country has been mostly cut off from the SWIFT cross-border transaction system, and businesses in America and other western countries are prohibited from doing business or transacting with Russian banks and the national wealth fund.
Jake Chervinsky, head of policy at crypto policy promoter the Blockchain Association in the U.S., posted a lengthy Twitter thread on Wednesday explaining how “Russia can’t and won’t use crypto to evade sanctions.”
Chervinsky stated three reasons why it is unlikely that Russia will use crypto to skirt U.S. sanctions. The first is that the sanctions are not limited to U.S. dollars, and it is now illegal for any U.S. business or citizen to transact at all with Russia. He said, “It doesn’t matter if they use dollars, gold, sea shells, or Bitcoin.”
The second reason is that the financial necessities of a nation like Russia far exceed the current capabilities of crypto markets, which Chervinsky called “too small, costly, & transparent to be useful for the Russian economy.” In other words, even if Russia could access enough liquidity, it still couldn’t hide its transactions in such a market.
Finally, the country has spent years trying to “sanctions proof” itself but has failed to build any meaningful crypto infrastructure or even finalize crypto regulations. Chervinsky said that crypto simply does not appear to be part of Russia’s plans to mitigate the effects of sanctions.
“The reality is Putin’s spent years trying to sanctions-proof Russia & crypto isn’t part of his plan. His strategy included diversifying Russia’s reserves into yuan & gold (not crypto), shifting trade to Asia (not onto blockchains), bringing manufacturing onshore, etc.”
However, Roman Bieda, head of fraud investigations at blockchain research platform Coinfirm, told Al Jazeera on Tuesday that it was possible in general to use crypto to “evade sanctions and hide wealth” as has been done by North Korea, Venezuela and Iran.
But other experts told the outlet that said Russia’s case is different because of the scale of sanctions, its sluggish rate of crypto adoption and lack of depth in markets.
Ari Redbord, head of legal and government affairs at crypto crime investigator TRM Labs, said the transparency of blockchain was a natural deterrent to sanction evasion in this case.
“Russia cannot use crypto to replace the hundreds of billions of dollars that could be potentially blocked or frozen.”
Cointelegraph reported on Feb. 25 that ECB President Lagarde was eager to get the Markets in Crypto Assets bill passed by the European Parliament as soon as possible in order to give European authorities the means so that “crypto assets can actually be caught.” Lagarde has been pushing to pass the policies urgently in order to prevent Russian President Vladimir Putin from potentially being able to evade sanctions with crypto.
In an interview with Rachel Maddow on MSNBC this week, Clinton urged U.S. President Joe Biden to bar Russia from crypto trading. She and Maddow discussed the national security threats that could exist in regards to cryptocurrency, and Clinton said, “The Treasury Department and Europeans should look hard at how they can prevent crypto markets from giving an escape hatch to Russia.”
“I was disappointed to see some of the crypto exchanges — not all of them, but some of them — are refusing to end transactions with Russia from some philosophy of Libertarianism.”
Related: European Parliament postpones crypto bill vote over proof-of-work
U.S. Senator Elizabeth Warren also took the opportunity on Tuesday to state that American financial regulators should scrutinize digital assets because they risk “allowing Putin and his cronies to evade economic pain.”
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