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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”.

www.anndy.com
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Crypto entrepreneurs find Singapore is not so hospitable after all

Crypto entrepreneurs find Singapore is not so hospitable after all

Scores of businesses fail to win licenses from city-state’s financial regulator

SINGAPORE — Cryptocurrency entrepreneurs lured to Singapore by its apparent openness to the burgeoning industry are discovering just how difficult it is to legally operate in the city-state.

More than 100 of the around 170 businesses that applied for licenses to offer “digital payment token services” have now been turned down or withdrawn their applications, according to the latest figures from regulators.

And scores more face an uncertain future, operating under exemptions but amid a darkening mood over the approval process.

In early September, the Monetary Authority of Singapore (MAS) ordered Binance, one of the world’s largest crypto exchanges, to stop providing services to residents in the city-state, and last week Binance’s Singapore-only affiliate announced it also was shutting down its trading platform for the city-state. Dozens are confronting a similar fate.

Dubai-based crypto exchange Bitxmi is one of 103 companies that appear on the latest MAS list of entities whose exemptions allowing them to operate have been removed. Having set up in Singapore in late 2018, it was unsuccessful in securing a license, Chief Executive Officer Sanjay Jain told Nikkei Asia.

“We can’t operate in Singapore,” he said. “We have an office there, but it’s just more or less — there’s one person for our accounting and legal issues.”

Jain declined to speak about why his outfit did not manage to secure a license from regulators. “That, you need to ask them,” he said.

The introduction of the licensing regime in January was cast as the next step in building a thriving crypto sector and set up a contrast with Singapore’s rival Asian financial hub, Hong Kong, which had taken a more skeptical approach to crypto businesses.

A spokesperson for MAS told Nikkei that it is supportive of innovation in the use of blockchain technology, which underpins cryptocurrencies, while also recognizing the risks.

“Cryptocurrencies could be abused for money laundering, terrorism financing or proliferation financing due to the speed and cross-border nature of the transactions,” the spokesperson said. “Digital payment token service providers in Singapore … have to comply with requirements to mitigate such risks, including the need to carry out proper customer due diligence, conduct regular account reviews, and monitor and report suspicious transactions.”

Rahul Advani, Asia-Pacific policy director at blockchain company Ripple, said Singapore’s stance on digital assets has resulted in the city-state being one of the most advanced and mature nations in the field, helping foster development and innovation in the emerging industry.

“It’s very clear where digital assets and related activities lie on the risk spectrum, so you mitigate the potential of developing and investing in technology that is unregulated,” he told Nikkei.

Crypto players that raced to set up in Singapore run the spectrum from exchange platforms for trading bitcoin, Ethereum and other tokens, through investment managers and financial advisers looking after digital asset portfolios for the wealthy, to business-to-business outfits helping corporate clients accept cryptocurrency payments.

Outfits that were operating in the country prior to the introduction of the licensing regime were granted exemptions until the outcome of their license application is known. Senior Minister Tharman Shanmugaratnam told parliament in July that there were 90 companies operating under such exemptions.

The MAS website showed that the group had shrunk to about 70 as of Dec. 14.

So far, only three players — DBS Vickers Securities, a unit of Singapore and Southeast Asia’s largest bank, DBS Group Holdings; digital payments startup FOMO Pay; and Australia’s Independent Reserve, which offers crypto exchange services — have been listed on the MAS website as licensed entities.

A cryptocurrency ATM sits next to a conventional cash machine in Singapore. (Photo by Dylan Loh)

Two others — Coinhako, which operates a crypto exchange platform, and TripleA, a payments company — have put out announcements themselves saying they have acquired the necessary approvals to operate.

Anndy Lian, chairman of Netherlands-registered crypto trading platform BigONE Exchange, told Nikkei that his outfit does not intend to apply for a license in Singapore presently.

“The whole process of selecting who to give the license to is not very transparent,” he said. “It gives the impression that the government is favoring big players and foreign exchanges.”

MAS has not publicly disclosed why specific crypto players were unable to obtain a permit.

But Nikkei understands that some of them did not have the capacity or infrastructure to meet the high compliance standards set out by the financial regulator to deter money laundering and financing of terrorism.

“Cryptocurrencies are currently being used to channel the earnings of everything from ransomware proceeds, the sale of narcotics to some of the most horrific crimes, including human trafficking,” said Rachel Woolley, head of financial crime at client management solutions provider Fenergo.

“Regulators have now entered this space in an effort to protect the financial services industry from illicit activity in much the same way that activity involving fiat currency must be monitored.”

MAS pointed to comments from its managing director, Ravi Menon, who has said that Singapore does not need 160 players in the crypto sector and it may be better to have “half of them” operating at very high standards.

TripleA told Nikkei that in securing its permit, it had to ensure that its operating procedures for risk assessment, customer due diligence, record-keeping, suspicious transaction reporting, auditing and training were up to snuff.

But its CEO, Eric Barbier, said TripleA gained little insight into what exactly made the difference between success and failure.

“MAS never talks. MAS asks questions and questions and questions,” he said. “You can ask questions but they will not answer, and most regulators are like this.”

Barbier reckoned that being a business serving other businesses may have helped secure a license. “Especially for consumer-to-consumer, like consumer exchanges and so on, the risk of money laundering is very high, so they need to demonstrate to MAS that they are able to mitigate all those risks accordingly,” he said.

Peiying Chua, financial regulation partner for Singapore at the law firm Linklaters, said it is unlikely MAS is specifically favoring big, incumbent financial players: “Likely reasons for unsuccessful applicants may include a lack of track record or key personnel without adequate experience, a lack of a sustainable business model or serious adverse records relating to directors and key individuals.”

 

Original Source: https://asia.nikkei.com/Spotlight/Market-Spotlight/Crypto-entrepreneurs-find-Singapore-is-not-so-hospitable-after-all

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”.

www.anndy.com
j j j

Anndy Lian’s Views On Second-Tier Exchanges: “They are too small to be on the radar so they can be more ‘wild.'”

Anndy Lian’s Views On Second-Tier Exchanges: “They are too small to be on the radar so they can be more ‘wild.'”

Thanks Simon Chandler for connecting me and seeking my views on the second-tier exchanges. I always like to pick my own brain and look at things from a different angle. This time I looked at second-tier exchanges being more innovative and daring. This is part of my views and is quoted on the article:

“The only advantage they have compared to the big brothers is they are too small to be on the radar so they can be more ‘wild,’” says Anndy Lian, a Singapore-based cryptocurrency and blockchain advisor and author.

“You seldom see a coin goes 100x on big exchanges but it’s still happening on second-tier and small exchanges.”

 

 

The full article can be found below or you can go to www.cryptonews.com to read it.

 

 

Read More

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”.

www.anndy.com
j j j