Crypto Tech Can Ensure Sanctions Compliance, Says Coinbase



In the early days of Russia’s invasion of Ukraine, the fear amongst many financial and economic experts was that the country would be able to use crypto to evade whatever sanctions were being imposed on it by the international community.

Coinbase, in a recent blog post, however, has posited that crypto could instead be used to enforce global sanctions against erring nations like Russia.

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According to the exchange’s Chief Legal Officer Paul Grewal, digital assets like Bitcoin and others have properties that dissuade sanctions evasion acts. Instead, he stated that traditional financial institutions are more likely to be used because they have allowed money laundering activities to thrive.

By transacting through shell companies, incorporating in known tax havens, and leveraging opaque ownership structures, bad actors continue to use fiat currency to obscure the movement of funds.

Grewal highlighted that this would be impossible with the use of crypto because transactions are public, traceable, permanent, and they would provide needed information to detect money laundering or sanction evasion.

Using the Russian government as an example, Grewal pointed out that the country cannot use crypto to evade sanctions because its central bank alone holds assets worth over $600 billion —an amount that is larger than the market cap of all digital assets bar Bitcoin. 

He continued that the government “would need virtually unobtainable amounts of digital assets to meaningfully counteract current sanctions,” and if they tried to use crypto, it “would require massive purchases that would be prohibitively expensive and detectable, as this buying activity would likely lead to price spikes.”

Interestingly, Coinbase has blocked over 25,000 addresses that it believes are related to Russian individuals or entities, which is in line with the global sanctions that have been imposed on the country. Also, a number of traditional financial technology companies have suspended their operations in the country too.

Stakeholders Insist Russia Can’t Evade Sanctions With Crypto

Notably, popular crypto lawyer Jake Chervinsky also shares Grewal’s view. Last week, he shared why he believed Russia would be unable to use crypto to evade sanctions.

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According to Chervinsky, concerns that Russia could use crypto to evade sanctions are baseless, as they do not consider how the crypto market works and how sanctions are being enforced.

He highlighted that crypto operates in a small market, its transactions can be quite expensive, plus the fact that transactions on blockchain would be too transparent for the Russian government to use for the evasion of sanctions. 

In his words, “crypto markets are thin to start with, and ruble trading pairs are rare. With Russia cut off from the world’s crypto industry, they can’t source nearly enough liquidity to matter. Russia also can’t hide its tracks with crypto.”

Aside from Chervinsky, Brett Harrison, the CEO of the US arm of FTX also stated that crypto exchanges have advanced technologies that allow them to enforce anti-money laundering regulations and sanctions.

Harrison, in a Twitter thread, highlighted the various steps a crypto exchange would go through to make sure that transactions are only performed by risk-free individuals. According to him, when a user refuses to verify his identity, he is “rejected and prohibited from trading.”

He also added that the exchange uses “use the same transaction monitoring tools that government agencies use” and when suspicious activities are detected, the user is stopped from moving assets.

In conclusion, Harrison stated that “public assertions that crypto is an effective means of evading sanctions due to lack of industry regulation are without factual support.”

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