Can Crypto Bypass Sanctions? Russia Thinks So

Can Crypto Bypass Sanctions? Russia Thinks So

By now, we are all familiar with the versatile use of cryptocurrencies. From enabling fast and borderless transactions to serving as an investment vehicle, digital currencies have demonstrated their capacity to disrupt traditional financial systems.

On July 30, 2024, Russian lawmakers passed a bill that will allow local businesses to use cryptocurrencies in international trade deals in an effort to side-pass Western sanctions.

Russia is not the first country to turn to cryptocurrencies in an attempt to side-pass imposed sanctions with North Korea also reportedly using digital currencies for the same reason.

How significant is Russia’s latest move to the crypto community? And can crypto truly be used to circumvent sanctions? We turn to the experts.

Key Takeaways

  • Russia passed a new bill that allows businesses to use cryptocurrencies in international trade, aiming to bypass Western sanctions.
  • The Russian ruble/USDT pair may see significant movement as demand from importers grows, indicating a potential increase in cryptocurrency transactions and market activity within Russia.
  • Despite the new bill, Russia’s crypto regulations remain complex, requiring businesses to navigate stringent AML and KYC laws to avoid legal issues and ensure compliance.
  • This new crypto strategy could strengthen ties with countries like Iran and China.
  • This legislation represents a step toward mass crypto adoption in Russia, potentially transforming how international trade is conducted and encouraging broader use of digital currencies.

Russia to Allows Businesses to Use Crypto in Deals

Russia’s State Duma passed a first-of-its-kind bill on 30 July 2024 stating that the country would allow businesses to use cryptocurrencies to secure international deals.

According to Russia’s central bank head, Elvira Nabiullina, who spoke at the Federation Council’s Financial Market Development Board meeting, the scheme is set to start under “an experimental regime” and will be pioneered before the end of the year.

Anton Gorelkin, a member of the State Duma and the co-author of the bill, added:

“We consider cryptocurrencies to be a tool which we can use to bypass sanctions as well as a point of high-tech export. Today, Russia ranks second highest in mining [crypto], and I am confident that once regulation in this area is established, we will surpass the United States, taking first place.”

According to industry experts, Russia’s bill is considered a “strategic move” to sidestep Western sanctions, as the country itself has stated — “but it also represents a significant shift in Russia’s global trade strategy amid increasing financial isolation,” Anndy Lian, an inter-governmental blockchain advisor, told Techopedia.

Lian added that the country’s current move is particularly noteworthy, seeing as Russia has previously had a pretty powerful anti-crypto stance, thus “indicating a programmatic shift in response to economic pressures”.

Financial Agents as a New Emerging Group

Dmitry Mishunin, the CEO of HashEx Blockchain Security, told Techopedia that Russia is most likely not evading sanctions through the use of cryptocurrency but giving way to a new group of financial agents — middlemen who perform transactions for importer companies.

“The scheme is simple: the importer pays the agent in rubles, and the agent pays in other currencies to the exporter.

 

“And this can be certified as a transaction between the supplier and the buyer without mentioning the agent.

 

“No one can say for sure how specifically these agents work. Some transfer their money through friendlier countries, some indeed use cryptocurrency.

 

“However, more often than not agents are smaller companies that belong to large financial institutions.”

Mishunin added that such agents often charge 15% for their services, however, the legislative basis for crypto payments within the country could open up the market for smaller-level agents who could lower the price for their services to 10% — a positive step for the country’s economy.

Lian further explained that while cryptocurrencies do provide a theoretical means to bypass sanctions, the practical implementation remains “complex and fraught with risks”.

“Cryptocurrencies offer a degree of anonymity and can facilitate cross-border transactions without relying on traditional financial systems, which are often subject to sanctions.

 

“However, the transparency of blockchain technology means that transactions can be traced, and major exchanges typically comply with international regulations, including sanctions.

 

“Regulatory scrutiny is increasing, and many countries are implementing stricter controls on cryptocurrency transactions to prevent their use in illegal activities … Therefore, while possible, using cryptocurrencies to evade sanctions is not a foolproof or widely adopted strategy.”

RUB/USDT Pair Could See Growth

Meanwhile, while some investors may avoid stablecoins, industry experts are noting that the RUB/USDT pair could see much movement in a deal like this.

“The other side of this coin is satisfying the demand for crypto assets. We might actually witness a deficit in the RUB/USDT pair, in case the demand from importers starts growing.

“It is one thing to provide your services to tourists and some professionals, new market demands are an entirely different thing,” HashEx’s Mishunin explained.

CEO of bitsCrunch, the AI-enabled decentralized, blockchain data network, Vijay Pravin, further highlighted the role popular stablecoins such as USDC and USDT could play in this deal due to their price stability and widespread acceptance.

“Cryptocurrencies with robust privacy features could be appealing options due to their transaction anonymity.”

Regulatory Environment Continues to Remain Complex

Despite the recent bill, Russia’s recent legalization of crypto mining, which is set to take action from November 2024, as well as continued efforts to pilot the digital ruble, crypto regulations in Russia continue to remain complex.

Lian explained:

“Compliance with Russian regulations is essential to avoid legal repercussions. Internationally, businesses must navigate the varying legal frameworks of different countries, many of which have stringent regulations on cryptocurrency transactions to prevent money laundering and other illicit activities.

 

“Additionally, major cryptocurrency exchanges often comply with international sanctions, limiting the ability of sanctioned entities to use their platforms.”

BitsCrunch’s Pravin added that Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations are also something Russian businesses interested in conducting business via the use of cryptocurrencies should keep in mind.

“Additionally, navigating sanctions enforcement by other countries and managing cross-border legal discrepancies will be crucial to avoid further legal complications.”

Either way, however, experts agree that the introduction of such a bill is a means to strengthen ties with Russia’s friendlier nations and those that are also looking to bypass Western sanctions such as Iran and China.

“On one hand, it might strengthen ties with countries that are also looking to bypass Western sanctions, such as Iran and China, fostering a bloc of nations using alternative financial systems. On the other hand, it could strain relationships with countries that adhere to international sanctions and regulatory standards,” Lian explained.

Cryptocurrencies Could Offer Sanctioned Countries a Path

Lian added: “Countries like Iran and North Korea have reportedly used cryptocurrencies to evade international sanctions. Iran has explored using Bitcoin for international trade to bypass banking restrictions, leveraging its abundant energy resources for mining. North Korea has been involved in cyber activities to steal cryptocurrencies, which are then laundered to fund its regime.

“These cases show that while cryptocurrencies can offer a way to circumvent traditional financial systems, they come with significant risks and challenges.”

The aftermath of such actions was increased scrutiny from international bodies that, in turn, limited the effectiveness of the countries’ strategies.

For Russia, Lian explains that the situation is similar, but on a larger scale seeing how the country has a more significant economic footprint.

“The use of cryptocurrencies could provide some relief from sanctions, but the associated risks, including regulatory crackdowns and the volatility of crypto markets, make it a complex and uncertain strategy.”

BitsCrunch’s Pravin added that global efforts to enforce international crypto regulations could present more challenges for Russian businesses that are looking to engage in financial trades using crypto.

HashEx’s Mishunin, on the other hand, noted that any movement from the Russian government in the direction of crypto regulation instead of embargoes is a positive thing and could work wonders for the Russian economy.

The Bottom Line

Russia’s new bill to legalize cryptocurrency use in international trade represents a strategic move to bypass Western sanctions and adapt to political pressures. While this move could provide some relief and foster high-tech exports, it introduces complexities and risks, including regulatory scrutiny and potential legal challenges.

The future of crypto adoption in global trade, particularly for countries under sanctions, continues to remain uncertain. Lian concludes that in the long term, the integration of central bank digital currencies (CBDCs) could offer a more regulated and widely accepted solution for international trade, even for sanctioned nations.

 

Source: https://www.techopedia.com/can-crypto-bypass-sanctions

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

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Are Regulations and Sanctions Driving Change in the Crypto Industry?

Are Regulations and Sanctions Driving Change in the Crypto Industry?

The powerful combination of incoming crypto regulation in the US, and the immediate global impact of Russian sanctions, mean the crypto exchange market looks to be in for a serious shake up in 2022. Just this week US Senator Elizabeth Warren announced a new piece of legislation to stop crypto businesses outside the US from working with sanctioned companies. It also authorizes the Financial Crimes Enforcement Network (FinCEN) to force US citizens with crypto transactions of $10,000 or more to report them.

Clearly global sanctions against Russia have moved crypto exchanges firmly into the center of geo-politics for the first time. Coinbase announced it was banning 25,000 Russian accounts. While Binance declared that: “To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists.” But just as revealing was the news from Wasabi Wallet that it will start introducing censorship methods into its mixing procedures, showing that fear of regulation was starting to impact beyond mainstream exchanges even before Warren’s planned legislative action.

What this means in all probability is that the advantage the exchanges outside the US had in largely ignoring regulations, benefiting from lower overheads and restrictions to their business activity is well and truly over. It’s not all bad news, as the positive response to the US administration’s crypto executive order shows, but it certainly means the industry needs to consider what this means for the long term, and what this means for crypto investors and traders looking for the best deal or the most secure transactions.

The US executive order underlines the seismic changes in the administration’s approach to crypto by seeking “to establish the first-ever comprehensive federal digital assets strategy for the United States” and by directing the Depart of Commerce to create a framework that “drives U.S. competitiveness and leadership in, and leveraging of, digital asset technologies.” In summary the administration’s six key priorities, according to the fact sheet, are to protect US interests, protect global financial stability, prevent illegal uses, promote responsible innovation, financial inclusion, and US leadership. As confirmed in a CoinDesk report, the order does not lay out specific positions the administration wants agencies to adopt, or impose new regulations on the sector. Indeed, it was welcomed by many in the industry who see it as a positive step forward. According to Jeremy Allaire, the CEO of Circle, which runs stablecoin USDC, “this is a watershed moment for crypto, digital assets, and Web 3 akin to 1996/1997 entire government wakeup to the commercial internet.”

Circle CEO Jeremey Allaire in a Twitter thread responding to the news.

But as the legislative moves by Senator Warren demonstrate, its actions and not words that count. The recent news of action to reign in the SEC by the US Congress after its enforcement arm chased “information from unregulated cryptocurrency and blockchain industry participants in a manner inconsistent with the Commission’s standards for initiating investigations” shows that significant risks for crypto exchanges remain while the US decides its crypto policy.

Despite the understandable focus on the US crypto regulation in recent weeks this sea change hasn’t appeared overnight, for example the China ban on crypto trading and mining took place in 2021, after the ICO ban in 2017. In contrast in Singapore, a leading location for the crypto industry, as late as July 2021, while the rest of the world was hellbent on cracking down on crypto, “crypto players like Binance have found Singapore to be a paradise of opportunity, even while a regulations storm looms over the industry in other parts of the globe.” As recently as last October following the latest crypto crackdown in China, the city-state of Singapore was seen as a chief beneficiary of fleeing businesses.

But then in December 2021 Binance, with a daily turnover of US$76 billion, no doubt fed up with the delays and opaqueness of the MAS licensing system, withdrew its Singapore application. In 2022 how Binance responded is also revealing, with its move to partner with Paysafe in the UK, providing the exchange with access to the UK payments network despite concerns from the UK financial regulator the FCA. While this week Binance’s CEO CZ has been meeting Brazilian regulators after signing an MOU to buy a securities brokerage and secured a virtual asset license in Dubai in a series of moves underling its look to secure its future in a more regulated crypto marketplace.

All these moves, along with competitors such as FTX and Coinbase, are to establish a future in the more regulated global environment in crypto. Anndy Lian, chairman of BigONE Exchange said, “I believe these twin forces of policy regulation led by the US, and even tighter Russian sanctions on crypto transactions, will in the near future in the next 12 – 18 months result in an expanded more regulated sector with greater competition particularly between exchanges and tighter profit margins than in the past.” Speaking after his expert contribution to Crypto Expo Dubai, Lian suggested this meant that decentralized exchanges, and privacy platforms, will be more clearly separated from the mainstream than in the past. “What does this mean for mainstream exchange service and offerings? The bottom line is that it’s got to be led by the needs of the community, by the exchange’s users,” he added.

How best to accomplish this community involvement is clearly still up for grabs. Notable are the remarks by Ethereum’s co-founder Joseph Lubin who has questioned the longer term viability of Solana, which in his eyes pays overly generous rewards to users validating transactions on the network, all backed up by generous VC cash. Solana needs to “figure out a more sustainable business model for the network”, Lubin said. In response to Lubin’s criticism, Solana Labs, said that “simply looking at protocol revenue doesn’t tell the full story of the long-term performance” of a blockchain’s economic model. Figuring out the economic model for crypto businesses, faced with new regulation and Russian sanctions, whether decentralized or centralized, is key to the future of the long term future of the crypto sector.

Speaking on the panel ‘Why are crypto exchanges still flourishing?’ at Crypto Expo Dubai on March 16 Lian warned: “I believe being regulated is a very good thing, it’s the reason I invested my time in giving cryptocurrency and blockchain advice to government over the years. But the thing is we also have to understand the other side of the crypto startup equation which is innovation; if we kept ourselves solely in the sandbox environment, in a closed regulated environment it the real risk is the innovative decentralized aspect will be lost and we’ll end up with a centralized world.”

 

Original Source: https://www.securities.io/are-regulations-and-sanctions-driving-change-in-the-crypto-industry/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

j j j