U.S. and European sanctions over the past week and a half have sent the screws to the Russian government and its oligarchs who are likely to use alternative methods to transport their money across borders.
“We believe that Russian companies and nationals are very likely to want to use crypto assets like Bitcoin or the pegged US Dollar stable, for example Heated (USDT), to circumvent the economic sanctions, ”said Josh Olszewicz, head of research at Valkyrie Funds, digital asset investment manager.
Stablecoins are tied to fiat or backed by central banks, while Bitcoin and other non-stablecoin digital currencies derive value from supply and demand and otherwise have no intrinsic value. Non-interchangeable tokens or NFTs are digital tokens attached to assets other than cash, but these “assets” can be as valuable as art and real estate or as insignificant as a random photo or a stuffed animal.
Along with freezing the assets of key Russian oligarchs, Russian and European governments banned Russian banks from using SWIFT, the world’s largest financial messaging network. The sanctions seemed to have almost immediate and far – reaching economic consequences, as billions of dollars were suddenly unavailable to Russian banks.
In addition to cryptocurrencies, even SWIFT’s financial messaging network can be easily manipulated to disguise the money transfers of approved entities, according to Mark Gazit, CEO of ThetaRay, an AI-driven transaction monitoring solution for cross-border payments.
SWIFT is a relatively secure network in its own right, but it’s not difficult to set up shell and money funnel companies through them and then use the financial messaging system to conduct cross – border transactions, Gazit said.
“It’s a pretty old system,” he said. “It was developed in 1973. That’s why SWIFT does not have all the security precautions you would expect with a newer system, which creates many issues even before the current situation. The problem is The system does not actually authenticate transactions. “
What is needed, Gazit said, is AI – based software that can look at the financial transactions themselves, and not just identify the senders, to determine if they are terrible or not. In addition, countries affiliated with Russia-affiliated SWIFT remain tied, and are likely to act as intermediaries for a moving ruble, Gazit added.
US and European governments are concerned about the Russian government, its banks and oligarchs other methods would be used moving assets in and out of the country.
I letter to Treasury Secretary Janet Yellen, US politicians noted that Russia could use “dark web market” cryptocurrencies to circumvent the sanctions and questioned whether governments needed additional tools to stop any such move. “These reports are even more troubling because analysts suggest that the cryptocurrency industry may not be fulfilling its responsibility to comply with U.S. sanctions,” the letter said.
Following earlier financial sanctions, the Department of the Treasury implement new regulations last week to prevent Americans from using cryptocurrencies to circumvent Russian sanctions. Treasury officials also called for cryptocurrency exchanges such as Coinbase, Binanceand FTXto block approved persons and their addresses.
Coinbase, the largest crypto exchange in the United States, responded by saying that it has no plans to impose a total ban on Russian customers, but that it will block trading activity involving approved individuals or entities. , Coindesk reported. Binance has publicly stated, along with several other exchanges, that it will not block all Russian users or IP addresses, but will target approved entities.
“Binance follows strict sanctions rules,” Binance CEO Changpeng Zhao told Bloomberg last week. It would be unethical for us to extend restrictions beyond the list of approved individuals, “he said.
However, Ethereum is two major providers of digital coin ecosystems initiated access restrictions keep users in “certain jurisdictions” from avoiding Russia’s international sanctions. Users of MetaMasc and Estuary – ramps in and out of Ethereum cryptocurrency exchanges – users were told that error messages about attempts to access Ethereum networks in those regions would be given.
“No legislator or regulator can stop a ramp in and out of an unregulated exchange or blacklist,” said Avivah Litan, vice president and distinguished analyst with research firm Gartner. But crypto organizations can; she called the move from MetaMask and Infura “very significant” in that it shows that some decentralized crypto networks are trying to comply with sanctions.
“It simply came to our notice then [Russia] they could hide their places in the future – so they could avoid location-based sanctions, ”said Litan. But the approved entities can only spend their money within decentralized crypto networks, and can only submit and convert new fiat money into cryptocurrencies and extract it using exchanges that do not cooperate with sanctions. ”
So, for example, Russian approved entities cannot divert their money from blockchain financial systems that have blocked them. Similarly, they cannot withdraw money from frozen bank accounts to buy crypto, Litan said.
Crypto-currencies run on blockchain based electronic ledgers, which provides anonymity through encryption. Therefore, approved entities cannot be prevented from buying in or selling encrypted or encrypted through the ramps in and out to exchanges. These ramps include digital wallets used to store bitcoin and other crypto assets and APIs or software interfaces to crypto exchanges.
However, approved entities must be identified in the blockchain network to prevent their movements from blockchain / crypto networks. And they can use fake identities to get accounts at the centralized exchanges, Litan explained.
“So it’s long and short – yes, sanctioned entities and criminals can hide in cryptocurrency networks, but they have a very difficult time getting their money in and out of those networks,” Litan said. . “Russia-approved entities cannot be stopped from holding and making cryptocurrencies or stable coins within crypto networks.”
Olszewicz of the Valkyrie Funds agreed, adding that some people who succeed in helping Russians (especially oligarchs) will launder their money through cryptocurrency “obviously”.
“But the vast majority of sanction evaders are likely to be in trouble,” said Olszewicz. forensic accountants, regulators and other investigators up to almost anyone who helps the approved person sooner than many people realize. ”
Crypt boom spurs sanctions
As a result of widespread financial sanctions on cross-border financial networks, the value of cryptocurrency markets rose sharply last week.
Last Monday, Bitcoin jumped 10.4% to $ 41,807.16, while Ether rose 7.6% to $ 2,826.54. US equities fell sharply earlier in the day before recovering much of their losses.
Ordinary Russians, or anyone from anywhere in the world, for that matter, using Bitcoin as an economic escape portal from forces outside their control “is a major feature, not a bug,” of the cryptocurrency, Olszewicz said.
“Bitcoin, cryptocurrencies, and stablecoins have sometimes acted as a vital economic lifeline for many in Ukraine and Russia, and the digital currencies are likely to continue to act as a banking and payments platform without the need for a third-party intermediary, as such. as SWIFT. “
Valkyrie Funds CEO Leah Wald said crypto networks could be at the tipping point that many are waiting for, “where bitcoin and other coins have become mainstream,” according to CNBC.
As the invasion of Ukraine unfolded, cryptocurrency trading volumes for Rubles and Ukrainian hryvnia trading pairs spiked to the highest level in months, especially for stablecoins, according to cryptocurrency trading data provider. Kaiko.
“The cryptocurrency exchanges could act as a powerful safe haven for assets while at the same time enabling the circumvention of sanctions,” he said. Kaiko market report February.
Russia’s invasion puts the cryptocurrency industry “in a unique and precarious position, with the need to balance the execution of sanctions and without the power to restrict transactions on decentralized networks,” the Kaiko report said.
“Cryptocurrencies and stable coins are safe havens especially if you live in a country where your currency is depreciating,” Litan said. “Trusting the protocol is about trusting the government or a particular company. I think this war is proving that protocols are far more reliable than certain governments. ”
Copyright © 2022 IDG Communications, Inc.
Russia is likely to use cryptocurrency to circumvent sanctions
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