Hands Can’t Hit What the Eyes Can’t See: Cryptocurrency and Sanctions Evasion

It was recently reported that Russian lawmakers have approved legislation which allows digital assets to be used in international settlements. In approving the legislation, a Russian lawmaker stated that settlements which go through the banking system are “visible, including to our enemies.” 

It seems that the purpose of the legislation is to ensure that cross-border transactions avoid scrutiny and the risk of the recently expanded scope of U.S. secondary sanctions, which permit banks in countries such as Turkey and China to be designated for conducting or facilitating certain Russia-related transactions (linked to Russia’s technology, defence, manufacturing, and other specified sectors).

Put simply, if a transaction is not visible, then sanctions cannot affect it.

This development highlights a well-documented trend in recent years: those willing to evade sanctions use features of cryptocurrency such as anonymity and instantaneous transactions to hide their activity. 

How then can digital assets firms protect themselves from being used to facilitate sanctions evasion? Whilst there is no singular strategy, here are some questions that can help:

1. Are sanctions-tailored policies in place? A global policy may fail to take into account differences between sanctions regimes.
2. Are transactions monitored appropriately? The use of intermediaries can often obfuscate the end recipient that may be located in a sanctioned jurisdiction.
3. Are customers screened appropriately? Checking names against sanctions list is not sufficient. Firms should check IPs and email suffixes to assess whether a customer is in a sanctioned jurisdiction.