According to reports, the United States is experimenting with a new method of putting pressure on Vladimir Putin: penalties against virtual currencies like bitcoinand ethereum.
A new task force has been established by the Department of Justice to enforce sanctions. That includes a focus on efforts to dodge U.S. sanctions, launder international corruption proceeds, or escape U.S. responses to Russian military action through the use of cryptocurrency.
The U.S. and its allies, including notoriously neutral Switzerland, have taken hefty punitive measures against Moscow, and Russia's access to digital cash has been targeted as a result.
Russia, as well as other ancillary actors supporting the onslaught on Ukraine, may be able to escape the sanctions system by using digital tokens that are neither controlled or issued by a central authority such as a bank. Decentralization and borderlessness are the hallmarks of Bitcoin****and other cryptocurrencies. Digital currencies are also impervious to blockade because of the lack of a centralized authority to enforce them.
There has been an increase in the volume of transactions on centralized bitcoinexchanges in both the Russian ruble and the Ukraine's hryvnia since Russia invaded Ukraine on February 24. Ukraine's request to all major crypto exchanges to remove Russian users, which has been refused by many key players, is likely one of the reasons why Ukraine has asked all of the main crypto exchanges to block Russian users.
Amidst increased interest in crypto as a way to avoid sanctions, crypto isn't a practical solution.
It is important to note that, by design, the blockchain is a public record that can be used to track token transactions. Aside from that, according to CNBC's interviewees, there are better and more intelligent ways to circumvent global financial restrictions than utilizing bitcoin.
A fellow at the Center for a New American Security who assesses national security and money laundering risks related to digital assets, Yaya Fanusie, says that the size and scale of crypto markets, as well as their state of liquidity, are not sufficient to offset banking disruptions or other disruptions from sanctions.
"It's like having your income held hostage for a month and having to rely on your piggy bank to make up the difference," he said of the situation.
When it comes to sanctions and workarounds, Russia's political establishment has spent years trying new things.
Crimea's annexation by Russia sparked international outrage in 2014. Another notable incident occurred in 2014, when a passenger jet traveling from the Netherlands to Malaysia was shot down in eastern Ukraine by a Russian missile fired from the territory controlled by pro-Russian rebels.
Russian sanctions have cost the country an estimated $50 billion a year since President Putin took office, according to economists.
Sanctions are usually implemented in this way: a government compiles a list of firms and individuals to be avoided, and those who transact business with them face stiff penalties. Sarah Beth Felix, an expert in anti-money laundering and sanctions compliance, said that sanctions are only as good as the KYC (Know Your Customer) onboarding requirements.
To determine whether sanctions are successful, Felix believes the data will vary based on how rigorous it is. No matter what type of currency, wire transfer, or payable-through account is used to move the money, "it all depends on the underlying data that is captured and confirmed on the ownership of the company, individual, and everything else."
Putin's strategy included moving away from U.S. Treasury bonds and the U.S. currency in favor of a new type of debt structure based mostly on euros and gold, among other things. Russian President Vladimir Putin has $630 billion in foreign reserves in his war chest, which he uses as a financial bulwark in the face of sweeping sanctions.
The underlying financial fundamentals of the country have also contributed to the shock's absorption. With only 18% of GDP in debt, Russia has a positive current account balance with oil prices skyrocketing beyond $113 per barrel (their highest level in over a decade), according to CNBC. The White House has not thus far approved Russian oil sales.
According to analysts consulted by CNBC, the Russian people have been preparing for a crackdown like this for months.
For some time, "Russia's elite and financial authorities have been preparing for sanctions," said Salman Banaei, Chainalysis's head of public policy for North America.
Felix concurred that the transit of monies may have occurred prior to Russia's invasion.
Regardless of whether the transactions included crypto or bank-to-bank wires, "I would presume billions and billions of dollars already gone via these front companies and shell firms that we have around the world that are owned by Russian enterprises and individuals."
Banaei concurs that designated persons are unlikely to choose to move big amounts of crypto at this time. If bitcoin has been used to avoid sanctions, Banaei argues, it has been done gradually over the last few months.
After all of this, "the glaring and vast gap that we have in the transparency of who owns what firms, not only in the United States, but around the world," Felix stated.
Russian state-owned firms with estimated assets of $1.4 trillion have new loan and equity restrictions imposed by the United States. The U.S. market, a vital source of funding, will be unavailable to these organizations. The overall market value of all cryptocurrencies is approximately $1.9 trillion.
This means that it can be difficult to purchase significant amounts of digital tokens like bitcoin. On Binance, the world's largest cryptocurrency exchange, the bitcoin-ruble pair has a maximum market order of roughly $250,000, whereas the bitcoin-USD pair has a maximum market order of around $2.6 million.
It's possible that Delston is correct when he tells CNBC that the Russian government will have to undertake transactions that are many times larger than the average Russian's current transactions. That would not only be difficult to accomplish due to a lack of funds, but it might also invalidate the transaction.
“A large transaction would be ‘quite obvious’ to anyone looking at the blockchain,” said Delston, who added that cryptocurrencies aren't the bastion of anonymity they are frequently made out to be.
