Treasury Department Targets Crypto Used to Bypass Russian Sanctions

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Ruble-denominated trades with Tether (USDT) Triple

The U.S., which has been trying to choke off financial support for Russian oligarchs, is now prohibiting its citizens from using cryptocurrencies to circumvent these sanctions.

The Treasury Department has issued new rules that prohibit U.S. persons — including Americans living abroad — from using digital currencies to circumvent sanctions against Russia.

Expanding Sanctions 

The United States has also imposed sanctions on Russia’ s central bank and other state owned and commercial financial institutions. Under the Trump administration’s latest measures (which were announced by Treasury Secretary Steven Mnuchin), Americans are effectively prohibited from doing business with Russia’s Central Bank, with its assets frozen here in the U.S. Moscow also faces financial pressures from the United States and its allies agreeing to restrict Russia’s access the SWIFT, a global payments messaging system

Cryptocurrency Exchanges Block Sanctioned Individuals

U.S. authorities have also urged major global cryptocurrency exchanges to block certain individuals from accessing their digital currencies regardless of where they live. The move coincides with the Ukrainian government officially requesting that eight cryptocurrency exchange platforms block Russian users from their websites amid concerns that cryptocurrencies are being used to evade tighter sanctions.

Coinbase, the largest US crypto exchange, responded by stating that it does not plan to impose a blanket ban against Russian customers but will block any trading activities involving sanctioned individuals or entities. Similarly, the world’s largest cryptocurrency exchange, Binance, has said it won’t ban Russian users but will target those with sanctions placed against them.

Increase in Ruble-Denominated Crypto Trading Activity

Since the invasion began, transactions on centralized crypto exchange involving the Russian ruble has skyrocketed. On Monday alone, bitcoin surged 14.6%, its biggest one-day increase since February 2017, while ethereum, the second largest cryptocurrency by market cap, jumped 11.7%.

Could Putin be exploring cryptocurrencies to bypass western sanctions?

Russian President Vladimir Putin attends a meeting with members of the Presidential Council for Civil Society and Human Rights at the Kremlin in Moscow, Russia December 18, 2018. Sputnik/Mikhail Klimentyev/Kremlin via REUTERS

Putin: Cryptocurrencies Are ‘Possible Means of Payment’

In an interview published by RIA Novosti news agency last week, Russian president Vladimir Putin said he was aware of cryptocurrencies and had even considered investing in them himself. He added that he thought they could become “a possible means of payment” in the future.

“I know about cryptocurrencies. I am familiar with this topic,” Putin told reporters during his annual Q&A session. “It�s interesting, no doubt. But as yet, we don�t see anything like that becoming a real alternative to traditional banking systems.”

He continued: “But if you think about it, it is quite possible that in the nearest years, when our country will have developed further, there may be such opportunities.”

Putin went on to say that he believed that blockchain technology would play a role in developing countries. “We need to develop these technologies so that they can help us solve problems that exist in our society,” he said.

Putin also suggested that the central bank should consider creating a special fund to invest in cryptocurrencies.

Russia’s Central Bank Has Been Targeting Bitcoin Mining

According to a report from local media outlet TASS, the Russian Central Bank (CBR) has been targeting cryptocurrency mining operations in recent months. In August, CBR officials reportedly visited several facilities in Siberia that were engaged in cryptocurrency mining.

The CBR also sent letters to the owners of two other facilities asking them to cease their activities. One of the targeted companies was reportedly using electricity generated by hydroelectric power plants to mine cryptocurrencies.

The CBR did not comment on the reports. However, CBR deputy chairman Olga Skorobogatova told journalists that the regulator was looking into the issue. She added that the CBR was concerned about the risks associated with cryptocurrency mining.

Skorobogatova noted that the CBR was monitoring the situation closely and was considering taking action against any operators who used energy produced by hydropower stations without permission.

Increased Demand For Rubles From Exchanges

As reported by CoinDesk earlier this month, demand for rubles on centralized exchanges has increased significantly since the start of the conflict between Ukraine and Russia. The number of trades conducted on Binance, OKEx, Huobi, Bitfinex, Coinbase Pro, Kraken, and Poloniex has risen by more than 50 percent since mid-August.

While some of the trading activity involves buying rubles and selling dollars, others involve trading between different cryptocurrencies. According to data provided by Chainalysis, the volume of trade involving the Russian ruble rose by almost $1 billion over the same period.

Binance CEO Changpeng Zhao said at the time that the exchange saw an increase in demand for rubles due to the sanctions imposed by Western nations on Moscow following its annexation of Crimea.

Zhao also indicated that the exchange was working with regulators to ensure compliance with anti-money laundering laws.

‘Crypto Is Not A Crime’

Earlier this year, the head of the Russian Association of Cryptocurrency and Blockchain (RACIB), Aleksey Moiseev, said that the association supported the legalization of cryptocurrencies. Speaking to Cointelegraph, Moiseev explained that the organization wanted to promote crypto adoption among Russians.

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