Following Russia’s invasion of Crimea in 2014, the United States banned Americans from doing business with Russian banks, oil and gas producers, and other companies. The impact on Russia’s economy was immediate and significant. According to economists, sanctions implemented by Western countries cost Russia $50 billion every year.
The global market for cryptocurrencies and other digital assets has grown dramatically since then. That’s bad news for sanctions enforcement, but good news for Russia.
The Biden administration imposed new sanctions on Russia on Tuesday in response to the turmoil in Ukraine, aimed at limiting the country’s access to foreign finance. Experts say Russian firms are planning to mitigate some of the worst effects by striking arrangements with anyone willing to work with them wherever in the world. They claim that these entities can then employ digital currencies to circumvent government control points, such as bank transfers, to prevent contract implementation. “Russia has had a lot of time to think about this exact consequence,” said Michael Parker, a former federal prosecutor who now leads Ferrari & Associates’ anti-money laundering and sanctions practise.
Sanctions are among the most potent measures available to the United States and European countries for influencing the behaviour of countries that are not considered allies. Because the dollar is the world’s reserve currency and is used in payments all across the world, the United States in particular can use sanctions as a diplomatic tool. However, officials in the United States are becoming more aware of the potential for cryptocurrencies to mitigate the impact of sanctions and are intensifying their monitoring of digital assets.
A government creates a list of people and businesses that its citizens must avoid in order to impose sanctions. Anyone caught interacting with a member of the list will be fined severely. The global banking system, however, is the essential key to any effective sanctions policy. Banks all over the globe.
Banks must follow “know your customer” requirements, which require them to verify their customers’ identities. Even though they are required to follow the same laws as banks, exchanges and other platforms that facilitate the buying and selling of cryptocurrencies and digital assets are rarely as good at tracking their customers as banks are. In October, the U.S. Treasury Department warned that cryptocurrencies posed an increasingly serious threat to the American sanctions programme and that U.S. authorities needed to educate themselves about the technology.
Experts say Russia has a variety of cryptocurrency-related techniques at its disposal if it chooses to circumvent sanctions. All it takes is figuring out how to trade without using the dollar.
