Russia has many cryptocurrency tools at its disposal to circumvent sanctions that are sure to surmount in the wake of its invasion of Ukraine.
When Russia invaded Crimea in 2014 it was hit with international sanctions that economists estimate cost Russia $50 billion a year. However, the global market for cryptocurrencies and other digital assets has developed significantly since then. Providing Russia with several alternative ways of subverting sanctions.
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Sanctions are effective as a diplomatic tool because of the global financial system, especially those enacted by the United States, which controls the world’s de facto reserve currency in the dollar. Companies and individuals are placed on a blacklist, and anyone caught trading with them must face a heavy penalty. These are effectively enacted by banks whose anti-money laundering laws require them to block transactions with sanctioned entities.
However, cryptocurrencies now enable entities to effectively evade these gatekeepers. While most crypto exchange platforms adhere to similar “know your customer” rules, they are rarely as exhaustive as regulated financial institutions.
As cryptocurrencies have developed in the ensuing years, Russia now has multiple cryptocurrency-related tools at its disposal. For instance, the Russian government is developing its own central bank digital currency (CBDC). With the so-called digital ruble, Russia will hope to trade directly with any other countries willing to accept it.
Additionally, Russian hackers will likely step up ransomware attacks for which they have become globally notorious to help make up revenue lost to sanctions. Iran and North Korea have already set precedents for these kinds of workarounds. The latter having used ransomware before to steal cryptocurrency to fund its nuclear program.
Cryptocurrencies also underpin dark web marketplaces, such as Hydra which handled over $1 billion in sales in 2020, through which illegal funds continue to find their way into Russia. While the platform’s stringent conditions and technology make it difficult for investigators to trace transactions, it currently lacks the scale to handle the volume of transactions needed at a national level. However, money laundering techniques such as “nesting” could help facilitate the need.
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