Kensington, New South Wales, Mar. 10, 2022 /Medianet/ —
FOR IMMEDIATE RELEASE.
Can Russia use blockchain to get around sanctions? UNSW cryptocurrency expert available for comment.
There are no measures to prevent Russian market participants from using cryptocurrencies to dodge economic sanctions, says UNSW Business School’s Elvira Sojli.
While crypto is proving to be a necessary lifeline for Ukraine, there are growing concerns Russia might use it to circumvent sanctions and move money undetected. Russia has one of the highest levels of crypto adoption, and before the Russia–Ukraine conflict, it ranked third among countries that sent the largest share of crypto transfers abroad (after Turkey and Ukraine).
Can Russia evade sanctions by using cryptocurrencies? “Yes, it can, even though it is costly, and it requires active participation by many counterparties. The volatility of cryptocurrencies also makes using them quite costly from the Russian side,” says Elvira Sojli, Associate Professor of Finance in the School of Banking and Finance at UNSW Business School.
“The sanctions, specifically SWIFT, stop transactions through certain banks, meaning that payments for purchases cannot be settled. If the seller (Russia) accepts cryptocurrencies, and the buyer is willing to use crypto to pay for the goods, then the SWIFT closure will not be as pertinent,” explains A/Prof. Sojli.
“Then the Russian counterparty keeps the crypto until they can convert it to what currency they need or to pay for other transactions using crypto.”
Banning Russia from the crypto world
Some crypto exchanges have said they will not ban any members from Russia. Doing so would be incredibly difficult, mainly because not all exchanges confirm the identity of their customers, and it’s generally difficult to track the origin of cryptocurrency transactions, according to A/Prof. Sojli.
“Because it is peer interaction-based, where peers are anonymous, it is hard to impose rules on who can transact with who. These are essentially IOUs passed from one person to the other, and the identity may never be clear,” she says.
“However, there also other ways of moving crypto assets outside of the exchanges, and that is harder to govern,” she says. “They can use legislation for all listed exchanges, but it is harder to manage the crypto circulation outside of the exchange system in the dark/deep web.”
Can the EU do anything? A/Prof. Sojli speculates that, short of banning Russia, there isn’t much governments can do. “It is very hard to regulate, as it is outside the system. They can legislate that any transactions including crypto which are ex-post verified to be with Russian accounts will be considered illegal and subject to fines.”
Banning access to crypto, even for people in Russia, would go against the very reasons why crypto exists in the first place. But given its potential role in funding war, and considering recent developments with Russia, should governments ban crypto?
“This is a tough question. Illegal is a step too far, but a regulatory framework is needed,” says A/Prof. Sojli.
For any further information, please reach out to Victoria Ticha at v.ticha@unsw.edu.au