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The Russian government is not using cryptocurrencies to evade economic sanctions in the wake of Russia’s invasion of Ukraine, a panel of experts told members of a Senate committee on Thursday.
“We have not seen any evidence of Russia or [President Vladimir] Putin systematically using cryptocurrencies to evade sanctions at the moment,” Jonathan Levin, co-founder and chief strategy officer at Chainanalysis Inc., a blockchain analysis company, told the Senate Banking Committee.
The experts argued during a committee hearing that there is not enough liquidity in markets for cryptocurrencies like bitcoin
BTCUSD,
and ether
ETHUSD,
for large economies like Russia to use them to evade sanctions or obtain access to currencies like the U.S. dollar
DXY,
and if such moves were attempted, they could be easily monitored by law enforcement.
“You can’t flip a switch overnight and run a G20 economy on cryptocurrency,” said Michael Mosier, former acting director of the Financial Crimes Enforcement Network, or FinCEN, referring the forum comprising the world’s 20 largest economies.
“Someone has to want rubles and there are not a lot of people in the world right now that want rubles,” he added. “Second, you have to find somebody that’s willing to make that trade that also feels comfortable that they’re not violating any sort of global laws…but most likely it’s not going to be anyone outside of Russia, that’s for sure.”
Several Democratic senators were skeptical of this point of view. Shane Stansbury, Duke Law professor and former Assistant U.S. Attorney for the Southern District of New York, said that while it’s unlikely crypto is being used to evade sanctions “at scale,” there remains the possibility that individually sanctioned Russians are making use of digital assets to hide portions of their wealth.
Democratic Sen. Elizabeth Warren of Massachusetts argued that the U.S. has already “detected the use of crypto on the part of North Korea, Venezuela and Iran as tools for sanctions evasion,” while FinCEN recently warned that Russians “may attempt to use crypto and anonymizing tools to evade U.S. sanctions and protect their assets around the globe.”
Despite this warning, a senior Biden administration official told reporters last week that “the use of cryptocurrency we do not think is a viable workaround to the set of financial sanctions we’ve imposed across the entire Russian economy and, in particular, to its central bank.”
Warren, along with 11 other Senate Democrats including Senate Armed Services Committee Chairman Jack Reed of Rhode Island and Senate Intelligence Committee Chairman Mark Warner of Virginia, on Wednesday introduced the Digital Asset Sanctions Compliance Enhancement Act of 2022, which aims to prevent Russia from using cryptocurrency to evade sanctions.
Opponents of the legislation argued that it is overly broad and threatens to block ordinary Russians who may or may not support the Putin regime and its war in Ukraine, from accessing global digital asset marketplaces.
“The bill would place sweeping restrictions on persons who build, operate and use cryptocurrency networks even if they have no knowledge or intent to help anyone evade sanctions,” wrote Jerry Brito, executive director of the cryptocurrency advocacy group Coin Center, in a blog post Wednesday. “It calls for sanctioning technologists and users merely for the act of publishing open source software or facilitating communication among network participants.”
Michael Chobanian, the Ukrainian founder of the cryptocurrency exchange KUNA, also appeared during the hearing, reminding lawmakers that the Ukrainian government is benefitting from a flood of cryptocurrency donations to its war cause.
He said crypto donations are especially valuable because they take far less time than traditional international bank transactions. “For my country , which is fighting right now with bare hands, time is vital,” he told the panel. “Crypto, which works 24/7, we receive the money instantly and we can spend the money instantly.”
