Banks sanctioned, will Russia use cryptocurrencies?

Banks sanctioned, will Russia use cryptocurrencies?

by Marco Dell’Aguzzo

Russia could use cryptocurrencies to alleviate the impact of international sanctions. But it won’t be easy. Here because

Neither the threat of heavy sanctions on the economy, nor the initial ones imposed after entering the separatist territories of Donetsk and Lugansk, were enough to persuade Russia to give up the large-scale invasion of Ukraine. However, the United States, Europe and the rest of the G7 member countries have announced further economic penalties to Moscow, hitting – among other things – the country’s financial institutions and restricting technology exports.
TURN SANCTIONS WITH CRYPTOCURRENCIES?
However, the New York Times wrote that Russia could use digital cryptocurrencies to ease the impact of international sanctions and continue doing business around the world. Thanks to cryptocurrencies, in fact, Russia will be able to “bypass the checkpoints on which governments depend” to block financial transactions: that is, mainly, money transfers between banks.
WHAT YOU NEED TO MAKE COMPLIANCE WITH THE SANCTIONS
Compared to Europe, the United States is better able to exploit sanctions as a diplomatic lever because the dollar is the world’s reserve currency and is used in almost all international payments. But – as the New York Times writes – for sanctions to be effective, the collaboration of banks around the world is necessary: they are the ones who “see where the money comes from and where it is going, and the anti-money laundering laws. they are obliged to block transactions with entities under sanctions and to report to the authorities ”.
In short, banks are the eyes and ears of governments in the financial space. But the platforms that handle cryptocurrency transactions usually don’t “track” users like banks do, nor are they forced to follow the same rules. Already in October, the US Treasury Department said that cryptocurrencies represent an increasingly serious threat to US sanctioning policy.
WHAT RUSSIA CAN DO
The government is developing its own central bank digital currency (it is not a cryptocurrency because it is subject to central control), the digital ruble, to use in direct trade with other countries, without first converting it into dollars.
The cyber skills developed by Russian cybercriminals – authors of many ransomware attacks, that is, of data stealing with ransom – could also allow the country to steal digital currencies and recover part of the damage suffered with sanctions.
RANSOMWARE ATTACKS AND OPAQUE PLATFORMS
In 2021, according to an estimate by Chainalysis, about 74 percent of the profits recorded as a result of ransomware attacks (i.e. more than $ 400 million in cryptocurrencies) were attributable to entities affiliated to Russia. Also according to Chainalysis, Russia has channeled illicit funds through a marketplace on the dark web called Hydra, in which cryptocurrencies are used: however, the tracking of money is complicated by the extremely stringent rules of the platform. For this reason, the Kremlin could use Hydra to move sums abroad, although the system is unable to handle too large operations.
Transactions with cryptocurrencies are recorded on the blockchain, the infrastructure – simplifying – that validates these exchanges and makes them transparent. But the digital tools developed in Russia, writes the New York Times, will allow the country to mask the origin of the transactions in question, allowing companies to trade with Russian entities without being detected.
THE PURPOSE OF THE DIGITAL RUBLE
In October 2020 some Russian central bank officials explicitly stated that the “digital ruble” would make the country less dependent on the United States, the dollar and the global banking system, and better able to resist sanctions.
To get around the penalties, however, Russia will have to find governments and companies that agree to conduct direct transactions, in digital rubles, bypassing the international system.