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  • by Smriti Mathur
  • Sep 22, 2022
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Treasury warns against Russia’s efforts to evade sanctions with cryptocurrencies

 

Since both cryptocurrencies hit a bottom in June 2022, ether has vastly outpaced bitcoin. Ether's greater gains have occurred as investors expect "the merge," a big update to the Ethereum blockchain.

According to a high-ranking politician, Russia is considering accepting Bitcoin as payment for its oil and gas exports.

According to Pavel Zavalny, "friendly" countries may be permitted to pay in cryptocurrency or local currency. Russian President Vladimir Putin stated earlier this week that he wants "unfriendly" countries to pay for its gas in rubbles. The action is thought to be intended to strengthen the Russian rubble, which has lost more than 20% of its value this year.

Sanctions implemented by the United Kingdom, the United States, and the European Union in response to the invasion of Ukraine have put a strain on Russia's finances and risen its cost of living.

Mr Zavalny, the chairman of Russia's State Duma's energy committee, stated on Thursday that the country is looking into other ways to get payment for energy exports.

He mentioned China and Turkey as "friendly" countries that were "not involved in the sanctions pressure."

"We have long proposed to China that we transition to settlements in national currencies for roubles and yuan," Mr Zavalny added. "It will be lira and roubles with Turkey."

"You can even exchange bitcoins," Mr Zavalny continued.

A Treasury official told lawmakers Tuesday that Russian President Vladimir Putin may use cryptocurrency to avoid US and other sanctions imposed on the Kremlin for its unjustified invasion of Ukraine.

The crypto bear market is unlike any other. This time, the Fed is in command.

The hearing was held by the Senate Committee on Banking, Housing, and Urban Affairs to address the next steps for deterring Russia's continuous aggression against Ukraine, such as the seizure of assets from Russian oligarchs and the G-7 request to cap the price of Russian oil.

Warren stated that she has been concerned about the likelihood of Russian elites using cryptocurrency to circumvent sanctions since the country invaded Ukraine in February.

High-profile officials are concerned that Russia's wealthy would avoid economic sanctions by shifting their riches to cryptocurrencies. US Democratic Senator Elizabeth Warren has introduced legislation in Congress to thwart Russian cryptocurrency transactions.

The law does not intend to prohibit all Russian cryptocurrency transactions. However, it would give the US government the authority to prohibit US companies from processing cryptocurrency transactions involving sanctioned Russian accounts, as well as to impose secondary sanctions on foreign cryptocurrency exchanges that do business with sanctioned Russian individuals, companies, or government agencies.

The law does not intend to prohibit all Russian cryptocurrency transactions. However, it would give the US government the authority to prohibit US companies from processing cryptocurrency transactions involving sanctioned Russian accounts, as well as to impose secondary sanctions on foreign cryptocurrency exchanges that do business with sanctioned Russian individuals, companies, or government agencies.

Despite indications that Russian cryptocurrency transactions have increased in both number and value in the last month, the magnitude suggests that buyers are regular Russians looking to protect their money as the rubble falls in value.

Economic sanctions imposed on Russia for invading Ukraine are undoubtedly harming the Russian economy as a whole. Their intended objective, on the other hand, is to strike Putin and the millionaire oligarchs who back his regime where it hurts the most.

A key component of this plan is to prevent these individuals from using or relocating their money by freezing assets held abroad and preventing financial transactions.

However, the continuous operation of cryptocurrency exchanges in Russia, such as Binance, Yobit, and Local Bitcoins, has long concerned US officials. Even before Russia's new invasion of Ukraine, the US Treasury Department warned that cryptocurrency might undermine sanctions imposed on Russia for its annexation of Crimea in 2014.

The Treasury Department has previously identified Russian firms attempting to avoid sanctions by using cryptocurrency. This month, Russia identified 22 individuals and two entities, including a neo-Nazi paramilitary group, for assisting Russia in digitally financing its war on Ukraine.

In April, the agency, along with oligarch Konstantin Malofeyev, privately owned commercial bank Public Joint Stock Company Transkapitalbank, and 40 other persons and companies led by Malofeyev, targeted a virtual currency mining agency for the first time.

That month, Russia-based Darknet Market Hydra and Garantex, a virtual currency exchange, were both sanctioned, ostensibly to close loopholes for prospective sanctions evasion.

The US authorities restricted access to all of their assets domiciled in the US or held by someone residing in the US. Treasury also prohibited transactions between sanctioned individuals and anyone in the United States.

Russia, on the other hand, planned ahead of time, inventing its own digital currency as early as February in the aim of trading directly with countries that will accept the funds without first converting them to dollars. Because crypto exchanges may be monitored on the underlying blockchain, the country also created mechanisms to hide the source of transactions.

Rosenberg verified that technology that increase anonymity and other techniques used to conceal digital transactions can interfere with sanctions enforcement. In May, Treasury imposed the first-ever sanctions on these "mixers," and another, "Tornado Cash," in August was sanctioned.

Warren stated that Coinbase, a large cryptocurrency trading company in the United States, filed a lawsuit against the Treasury Department this month on behalf of Tornado Cash customers.

The fines, according to Coinbase's chief legal officer, Paul Grewal, created a "dangerous precedent," but Rosenberg hailed them effective.

“When they can serve as a deterrent to any criminal (who) would seek to use a mixer in order to launder their funds, the proceeds of corruption or any criminal activity, that’s an effective avenue that we can use in order to signal that we cannot tolerate money laundering,” Rosenberg said.

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