Russia cannot evade sanctions with cryptocurrencies: Warren’s proposal only harms the US

One of the main benefits of cryptocurrencies is that it makes cross-border financial transactions faster, cheaper, and more secure. In the wake of Russia’s unjustifiable invasion of Ukraine, skeptics in Congress claim that Russia could use cryptocurrencies to evade devastating economic sanctions imposed by the West.

yeah senator elizabeth warrenElizabeth WarrenPelosi Endorses Cuellar, Says ‘I Don’t Know What It Is’ From FBI Raid New SEC Climate Rule Leaves Progressives Wanting More Democrats Push Biden to Extend Student Loan Payment Freeze MORE (D-Mass.) and several Democratic co-signers introduced legislation to satisfy their fears and place unnecessary and onerous restrictions on cryptocurrencies. Here’s the good news: Those fears are completely unfounded. Russia will not use crypto to evade sanctions because it cannot.

To explain, let me first briefly explain what sanctions are, how crypto markets work, and how Russia fits in.

Sanctions are a foreign policy tool used to influence behavior and punish foreign bad actors. In the US, sanctions originate from the president or Congress, and then the Office of Foreign Assets Control (OFAC) designates specific sanctions targets: individuals, companies, governments, banks, etc. From there, OFAC adds targets to the Specially Designated Nationals (SDN) and Blocked Persons list, making it illegal for any U.S. person or organization to interact with those in the U.S. the list.

This is critical. SDNs may not access US goods or services, sell products to US buyers, own US property, or otherwise engage financially with US entities. Anyone who violates these rules has committed a federal crime.

Since the Russian invasion, the United States and its allies have imposed harsh sanctions that are already devastating Russia’s economy. Right now, most of Russia’s economy is cut off from all the goods and services the free world has to offer – which brings me to cryptocurrencies.

A collection of Democratic senators believe Russia can use the technology to evade sanctions and gain access to global finance. To this end, Warren’s bill encourages the Biden administration to impose more onerous restrictions on cryptocurrencies, including secondary sanctions on a host of individuals and businesses, including US citizens, that have nothing to do with SDN. russians

This basically fails to understand what crypto is and what it can do.

First of all, the fact that cryptocurrencies are separate from the traditional financial system does not mean that they are immune from US laws. Crypto companies, like all US entities, are currently prohibited from interacting with Russian SDNs. It is illegal for Americans to transact with SDN, period. It doesn’t matter if they use dollars, gold, seashells or bitcoin.

Second, although crypto has grown rapidly in recent years, the crypto markets are still too small and transparent to be useful to the Russian economy. For starters, crypto markets are relatively illiquid, and ruble trading pairs are rare. To make a significant difference, Russian SDNs would have to convert billions of dollars worth of rubles into crypto. With Russia cut off from the global crypto industry, they cannot get enough liquidity for that.

Third, Russian SDNs cannot hide their tracks with crypto. The transparency of public ledgers and the analysis capabilities of US forensic firms render cryptocurrencies useless for sanctions evasion; if Russia were to try, the US government would see and be able to track their funds in real time. Furthermore, the Treasury Department itself knows that there is no real risk of Russia using crypto to undermine sanctions.

Finally, the Russian government has shown no interest in trying to use cryptocurrencies to evade sanctions. Russia has no crypto assets and no crypto infrastructure. Instead, Russia has sought to mitigate sanctions by diversifying its reserves into yuan and gold, and replacing SWIFT with its own interbank messaging system, SPFS. Despite reports speculating about capabilities like the digital ruble, which does not exist, the reality is that cryptocurrencies have not been and will not be of any help to Russian SDN.

All this is not to say that cryptocurrencies do not have a role in this crisis; in fact, cryptocurrencies are actively helping Ukraine’s war effort. As Forbes reports, Ukraine has raised more than $50 million in crypto donations for security and humanitarian aid since the Russian invasion. Given the devastation that the sanctions have already wrought on the Russian economy, it is clear that cryptocurrencies are doing a lot more good than harm.

There are still many misunderstandings about cryptocurrencies and in times of crisis, it is understandable that some do not trust this complex state-of-the-art technology. But as the crypto industry quickly becomes a major player in global finance, we encourage Congress to get involved with our industry. If they do, they will see prosperous American companies that play by the rules and respect international law and human rights.

Jake Chervinsky is chief policy officer for the Blockchain Association, the Washington, DC-based trade association that represents the cryptocurrency industry.

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