Crypto-currencies unlikely to bypass sanctions on Russia for now: ING

Singapore

CONCERNS that cryptocurrencies can be used as a major sanction evasion tool against Russia seem "exaggerated" for now as service providers are obliged to apply the sanctions as well, said ING.

ING head economist of digital finance and regulation Teunis Brosens disagreed with denying all Russians access to crypto services over the Ukraine conflict, in a research note on Monday (Mar 7).

This would not appear to be in line with the chosen sanctions approach so far, he said, as no blanket ban has been issued on transactions with Russia as yet, even though the breadth and depth of the financial sanctions are far-reaching.

Late in February, Ukraine's deputy prime minister Mykhailo Fedorov, who is also minister of the country's digital transformation, demanded via Twitter that crypto platforms block Russian accounts.

Earlier last week, the Group of Seven industrialised nations were also examining ways to stop individuals or companies targeted by Western sanctions from using cryptocurrencies to dodge the punitive measures.

Crypto-asset service providers, like any other legal entity, are obliged to apply sanctions, such as in the European Union (EU) where EU-based crypto companies are subject to EU sanction law, Brosens said.

Even if service providers in faraway jurisdictions allowed sanctioned activities on their platform, the economist "severely doubts" that a transfer of large sums of money in or out of Russia would stay unnoticed or unresponded to, due to the traceability of crypto transactions.

He noted that on-chain forensic research has become more advanced over the years, making it more difficult to hide transactions on the blockchain.

In fact, financial flows can be diverted to jurisdictions that have not joined the sanctions, or cash and gold can be carried across borders physically, hence cryptocurrency markets are not the only way to evade Western sanctions and Russian restrictions, Brosens said.

However, the economist noted that while cryptocurrency's role in facilitating sanction evasion may appear limited today, that may not be the case for the future as sanctions are evolving over time.