The American cryptocurrency exchange Coinbase has proposed the use of cryptocurrencies to enforce financial sanctions. This recommendation comes from highlighting how easy it is to launder banknotes and avoid impunity, which is made possible by traditional financial infrastructure.
A blog post written by Coinbase General Counsel Paul Grewal talks about the growing scale of global sanctions imposed in the midst of the Russia-Ukraine conflict. The cryptocurrency exchange supported the government’s decision to impose sanctions on individuals and territories and emphasizes its importance for “strengthening national security and deterring illegal aggression.”
Grewal points out that despite sanctions imposed by governments over the years, laundering fiat currencies through traditional financial institutions is still the most popular method of avoiding sanctions:
“By doing business through shell companies, bundling into well-known tax havens and using opaque ownership structures, unscrupulous players continue to use fiat currencies to hide the movement of money.”
On the other hand, Grewal argued that digital asset transactions are public, traceable, and persistent—an important advantage that public authorities can take advantage of to detect and prevent evasion.
In addition, well-known crypto lawyer Jake Chervinsky highlighted why governments cannot use cryptocurrencies to avoid sanctions. Gruell acknowledged the same, stating that entities intending to face sanctions require “numbers of digital assets that are practically unattainable,” adding:
“As a result, attempts to hide large transactions using open and transparent crypto technology will be much more difficult than other established methods (such as the use of paper assets, art, gold or other assets).”
Some of the proactive actions taken by Coinbase to implement the global sanctions program include blocking access to devices reported during the registration process, evasion detection, and threat prediction using sophisticated blockchain analysis software.
In addition, other crypto companies have begun to take measures to curb the use of cryptocurrencies based on sanctions recommended by the US government. For example, Prague-based crypto wallet provider Satoshi Labs has announced that it will stop sending crypto wallets to Russia. Satoshi Labs spokeswoman Kristina Mazankova said that while Bitcoin (BTC) is apolitical, the move was taken to limit the sending of cryptocurrency wallets to Russia because “company employees have ties to the dispute that makes it personal.”
Cryptocurrencies not only help law enforcement track down suspicious activity through a transparent blockchain, but also play an important role in protecting people’s privacy, a principle that exists in the traditional financial system. Grewal concluded:
“We believe we can balance these interests by continuing to support law enforcement by promoting a political framework that respects an individual’s privacy.”
Related: New York State Steps Up Blockchain Monitoring to Enforce Sanctions
In the first week of March, the New York State Department of Financial Services (DFS) announced the introduction of blockchain-based technology to enforce existing global sanctions.
As Cointelegraph reported, DFS plans to accelerate the acquisition of additional blockchain analysis technology to help identify Russian individuals and entities associated with DFS-licensed virtual currency companies.