The use of cryptocurrencies to evade international sanctions from various international government organizations such as the United Nations (UN), the International Monetary Fund (IMF) and the World Bank among others has been around since the foundation of. a concern of the cryptocurrency supervisory authorities.
The rapidly increasing adoption of digital currencies over the past two years makes this discussion more important than ever, especially with the advent of central bank digital currencies, the central bank (CBDC) as the digital yuan.
In an interview, US Treasury Secretary Wally Adeyemo said that the effectiveness of US sanctions would not be undermined by the digital currencies of central banks.
Adeyemo’s comments follow comments from sanctioned Russian oligarch Oleg Deripaska, who urged the Russian government to use Bitcoin to bypass US sanctions and even undermine the currency’s dominance. “The United States has long recognized that unregulated digital payments have the potential to not only neutralize the effectiveness of the entire economic sanction mechanism, but to bring down the entire currency,” Deripaska said.
The Biden administration as a whole has taken a tough stance on crypto companies promoting such causes. She found crypto exchanges guilty of triggering ransomware attacks by rival countries.
Related: Ethereum developer faces grand jury for allegedly helping North Korea circumvent sanctions
Ransomware attacks are the tip of the iceberg
In September, the Treasury Department’s Office of Foreign Assets Control sanctioned over-the-counter broker Suex by adding it to its list of Special Designated Nationals with Assets Freeze and others. The broker’s offices in Moscow and Prague were also listed by the government agency as a sanctions list, which includes 25 crypto addresses for Bitcoin (BTC), Ether (ETH) and Tether (USDT).
More recently, on November 8, the regulator sanctioned the Chatex crypto exchange and seized $ 6.1 million worth of crypto tokens from the company. Both exchanges will be penalized for the same reasons, i.e. accepting cryptocurrencies that are used to pay hackers for ransomware attacks.
Cointelegraph discussed these sanctions with Ari Redbord, the director of regulatory and government affairs at TRM Labs – a blockchain intelligence protocol. Redbord previously served as Senior Advisor to the Secretary of State and Secretary of State for Terrorism and Financial Intelligence at the US Treasury Department.
Redbord told Cointelegraph, “These are non-compliant nested exchanges or parasitic virtual asset service providers that sit on top of larger compliant exchanges to take advantage of their speed and liquidity.”
Such exchanges live in the shadow of a largely compliant cryptocurrency ecosystem and do not have adequate compliance procedures in place to avoid illegal financial risks. Redbord elaborated on the government’s stance on the matter:
“The authorities have made it very clear that ransomware is not a cryptocurrency problem. This is a cyber problem and the focus should be on building defenses in cyberspace. The Treasury Department was very deliberate in its actions – it only pursued the illegal behavior of the crypto ecosystem – for example parasitic VASPs and darknet mixing services – and not the money economy. ”
Funding terrorism with cryptocurrency is also a big concern of regulators. In fact, it was one of the main driving forces behind the Indian regulator’s intention to ban cryptocurrencies, which led to a panic sell-off in the region when the developments became known.
Redbord mentioned that in the past year there has been a global shift towards a post-9/11 world where the battlefield is now largely digital. He added, “We have seen cryptocurrencies being used by nation-state organizations like North Korea in terrorist financing, ransomware payments, and programmatic money laundering. However, we’ve also seen law enforcement agencies use blockchain analytics tools […] monitor and track cash flow to reduce the risk caused by these nefarious actors. ”
The fact that the majority of cryptocurrencies and the blockchains that enable them are open source means law enforcement, regulators, and financial institutions have better insight into cash flows than institutional mechanisms. However, to effectively ensure that cryptocurrencies are not used to evade sanctions, it is important that financial regulators better understand the asset class and the technology behind it.
Charlie Chen, chief marketing officer of the decentralized financial protocol Horizon Finance, told Cointelegraph, “Governments and financial institutions have yet to learn how to use cryptocurrencies, so they could be really affected. The world is full of stories like that of the Silk Road. There are real criminal cases involving cryptocurrencies and there are convictions which means having evidence. “
Related: Iran’s Universal Call to Use Cryptocurrencies to Avoid Sanctions
CBDC for minimal impact on sanctions
Another aspect of cryptocurrencies that could affect sanctions is central bank digital currencies. China is currently the leading country where CBDCs are interested in the most advanced CBDC program – Digital Currency Electronic Payment or Digital Yuan.
In the past, major Chinese banks operating in the US have taken cautious steps to comply with US sanctions. However, some fear that this rollout of CBDCs in global markets could weaken the dollar over time if the US fails to catch up with China’s program.
However, Chen believes that CBDCs can hardly be used to evade economic sanctions. “Currently, most international transactions are conducted in US dollars, and Russian companies will have a hard time convincing their colleagues to abandon dollar transactions in favor of digital rubles,” he said.
He added that existing transaction tracking mechanisms and algorithms already enable the detection of suspicious transactions and that these mechanisms will only become more advanced and efficient in the future.
Currently, there is no barrier to paying a sanctioned party for a service in a cryptocurrency like Bitcoin. Even when using popular cryptocurrencies and wallets on the whitelist, these transactions go unnoticed by the financial supervisory authorities. However, Chen stated that problems will arise when the tokens are exchanged for fiat currency and transferred to the sanctioned party’s bank account.
Chen added, “If you’re using a big exchange like Binance, this bank transfer won’t work. Therefore, you have to use the smaller exchange services that are already very popular in the post-Soviet space. “
While cryptocurrencies are becoming more mainstream each day, they are largely unregulated in many jurisdictions around the world, and adoption is still emerging. Therefore, the possibility of using cryptocurrencies at the national level needs to be determined in order to avoid sanctions.
One thing is clear, whether cryptocurrencies are turning out to be the next iteration of money or just another form of investment, regulators are overseeing their use in real estate activities.
Related: China’s CBDC is about domestic dominance, not about beating the dollar
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