Bitcoin and other cryptocurrencies have made it easier than ever to transfer money around the world without the help of traditional banks, but that doesn’t mean they’ll do much to help Russia circumvent international sanctions. .
Money laundering experts said on Friday that it would not be realistic for Russia to switch to large-scale cryptocurrencies to move money across borders, although it could work for smuggling small quantities to or from the country.
Russia may still try to launder money this way, especially if the United States and European Union impose much tougher sanctions over the Ukraine crisis, but a sharp shift to cryptocurrency won’t help. hasn’t been very successful for other excluded countries like Venezuela that have tried it, experts say.
“The thing is, these penalties are going to be potentially crippling and could become more crippling, and there’s nothing crypto can do about it,” said Ari Redbord, head of legal and government affairs at TRM Labs, a cryptocurrency compliance firm. .
The reasons relate to the serious potential consequences for people outside Russia who transact in violation of sanctions, as well as the sweeping transparency that is one of the hallmarks of virtual currency.
Online exchanges, while they may present themselves as a challenge to the establishment, have also developed modern compliance services similar to those of banks, experts said.
“A lot of times you hear that the crypto industry is this unregulated Wild West, and that’s just not true in the United States,” said Redbord, a former federal prosecutor and Treasury Department official.
Cryptocurrencies have had an air of mystery and anarchy since the development of bitcoin as the first peer-to-peer electronic payment system over a decade ago. Its proponents hail bitcoin as being free from the control of any authority and a competitor to the US dollar and other government-backed currencies. Some think it might help bring world peace.
Moving and trading cryptocurrencies via online exchanges is fast, and there is a record of every transaction stored on a blockchain, a ledger anyone can read but no one can tamper with or destroy because it is stored on a distributed computer system.
But the same qualities that make cryptocurrencies attractive to some buyers could also make them a terrible choice for money laundering.
“When you look at crypto, it’s a market that, at first glance, looks like a great way to hide sources of funds and move funds around the world,” said Salman Banaei, public policy manager for North America at Chainalysis, a cryptocurrency compliance firm. .
“The problem, however, is that cryptocurrency transfers can be tracked in real time,” he said. “Over the past few years, there have been a number of technological breakthroughs in terms of tracking cryptographic activity, both simply and through mechanisms intended to hide the source of funds.”
Banaei said Russia, in trying to move money around the world, would likely first turn to traditional forms of money laundering, with shell companies and shady banks. A second, more attractive option than cryptocurrency, he said, would be to try to launder money through another traditional foreign currency, such as the Chinese yuan.
Zachary Goldman, a partner at law firm WilmerHale, said cryptocurrencies offer investigators unprecedented transparency and in some ways investigations are easier than those involving cash dollars or other physical objects.
“If you steal a diamond watch, there is only one diamond watch. But if you steal $200,000 in crypto, you can potentially access it through a wide range of mechanisms,” Goldman said.
The US government has stepped up the fight against cryptocurrency-enabled money laundering even in the past year.
In September, the Treasury Department for the first time placed a digital currency exchange on its list of sanctioned people and organizations. The exchange, Suex OTC, was registered in the Czech Republic but had strong Russian ties, and US officials said it facilitated ransomware payments. They sanctioned a second exchange, Chatex, in November.
Redbord, the former prosecutor, said the actions could be the start of a larger enforcement effort.
“There is a whole ecosystem of these things. They represent a very small fraction of the overall crypto economy, but they live and move in all kinds of jurisdictions,” he said.
In a warning to all digital coin companies, the Treasury Department issued in October a 28-page guide to sanction compliance specifically for the virtual currency industry. He warned that they have an obligation to block access to virtual currency that violates sanctions, and that they face consequences, including criminal investigation if they fail to do so.
This month, the Justice Department announced the seizure of $3.6 billion worth of cryptocurrency, the largest financial seizure the department has ever made, and the arrest of two people it says have stole bitcoins in 2016.
“Cryptocurrency is not completely anonymous. There are ways to look at related transactions to determine who the people are,” said Robert Clifton Burns, senior counsel at the law firm Crowell & Moring and specialist in sanctions law.
Burns said the sweeping nature of US sanctions so far, with potentially more on the way, would likely persuade exchanges and other cryptocurrency firms to crack down on any activity that could lead to a breach. This would mean that Russians with cryptocurrency might find it difficult to unload it.
“I don’t think people are going to risk scrutiny by engaging in systematic, large-scale cryptocurrency transactions with Russians,” he said.
There is precedent for countries that have upgraded their systems to bitcoin or another virtual currency in the face of US sanctions. Iran tried mining bitcoin, North Korea has been accused of flight large amounts of cryptocurrency and Venezuela has created its own virtual currency, the petro.
Experts said none of these countries had solved the problem of how to easily launder the digital coin, but Russian President Vladimir Putin could still push for something similar in more dire circumstances.
“If Russia is prevented from exporting its gas or oil, it could instead use it to mine cryptocurrency,” said Tom Robinson, chief scientist and co-founder of Elliptic, a London-based company that advises companies on compliance with crypto regulations.
“Iran has already done just that – effectively ‘exporting’ millions of barrels of oil in this way.”
So far, however, the sanctions against Russia are different from those against Iran, which faces restriction on its sale of oil.