When Russia invaded Crimea back in 2014, the United States stopped doing business with Russian gas and oil developers, banks and other companies. This resulted in a swift and immense hit to the Russian economy. According to economists, the cost of the sanctions by the Western Nations for Russia were about $50 billion a year. But, since then, the global crypto market and other digital assets has expanded significantly. This is good news for Russia and bad news for countries that impose sanctions. On Tuesday, the US government introduced new sanctions on Russia due to its invasion of Ukraine, with the purpose of thwarting Russian access to foreign capital.
However, Russian entities gearing up to mitigate some of the worst effects by making deals with anyone globally who is ready to work with them. These entities can also use digital currencies for bypassing the control points that governments use for blocking execution, such as money transfers to banks. A former federal prosecutor, Michael Parker said that Russia had a long time for coming up with a way of dealing with this significant consequence. He said that it would be naïve to assume that they haven’t already thought of a way out of this scenario.
Sanctions are considered one of the most powerful tools at the disposal of the United States and European countries for influencing the behavior of countries they don’t regard as allies. The US, in particular, is able to leverage sanctions as a diplomatic tool because the US dollar is considered the reserve currency in the world and used for making global payments. However, the government is aware of the potential of cryptocurrencies in reducing the impact of sanctions and has stepped up its scrutiny of digital assets. Sanctions can be applied after a government has made a list of businesses and people that the country’s citizens should avoid.
There are heavy fines on anyone caught engaging with anyone on the list. However, it is the global financial system that is key to ensuring the effectiveness of a sanctions program. Banks all over the globe play a key role in the enforcement of sanctions because they keep track of where the money is coming from and where it is heading. As per anti-money laundering laws, they can block transactions with sanctioned organizations and report transactions to the authorities. The problem is that banks are blinded in the case of digital currencies because crypto exchanges and other platforms do not comply with know your customer rules.
Therefore, they cannot track transactions the same way as banks. The US Treasury Department had warned back in October that crypto were a serious threat to the US sanctions program, so US authorities need to educate themselves about them. If Russia decides to evade the sanctions imposed on it, it can take advantage of numerous crypto-related tools. It just has to figure out a way to trade without involving the US dollar. The Russian government is already working on a digital ruble that will allow it to trade with other countries directly without needing the US dollar.