The use of cryptocurrencies to avoid international sanctions from various intergovernmental organizations such as the United Nations (UN), the International Monetary Fund (IMF) and the World Bank, among others, has been a regulatory issue since the inception of cryptocurrencies.
The rapidly growing use of digital currencies over the past two years makes this debate more relevant than ever, especially with the advent of central bank digital currencies (CBDCs) such as the digital yuan.
In an interview on November 17, US Deputy Prime Minister Vali Adeimo said the effectiveness of US sanctions would not be undermined by central bank digital currencies.
Ademo’s comments follow those of sanctioned oligarch Oleg Deripaska, who has called on the Russian government to use Bitcoin to avoid US sanctions and even weaken the dominance of the US dollar. “The United States has long recognized that uncontrolled digital payments could not only undermine the effectiveness of the entire economic sanctions mechanism, but also weaken the dollar as a whole,” Deripaska said.
The Biden administration has generally taken a tough stance against crypto companies that support such cases. He found cryptocurrency exchanges guilty of organizing ransomware attacks aided by rival countries.
On the subject: Ethereum developer to face jury trial for allegedly helping North Korea evade sanctions
Ransomware attacks are just the tip of the iceberg
In September, the Treasury Department sanctioned OTC broker Suex by the Treasury Department, adding it to the list of Special Purpose Citizens whose assets were on hold and banning certain U.S. individuals from financial transactions with them. The broker’s offices in Moscow and Prague were also listed by the authorities as part of their sanctions, including 25 cryptocurrency addresses for Bitcoin (BTC), Ether (ETH) and Tether (USDT).
Most recently, on November 8, the regulator imposed sanctions on the Chatex cryptocurrency exchange and seized $ 6.1 million in cryptocurrency from the company. Both of these exchanges were fined for the same reasons, that is, for accepting the cryptocurrency that was used to pay hackers for ransomware attacks.
Cointelegraph discussed the sanctions with Ari Redbord, head of legal and government affairs at TRM Labs, the blockchain intelligence protocol. Previously, Redbord served as Senior Advisor to the Under Secretary of State and Under Secretary of State for Terrorism and Financial Intelligence at the US Treasury.
“These are incompatible cross-exchanges or virtual asset service providers that tie into the infrastructure of larger compliant exchanges to capitalize on their speed and liquidity,” Cointelegraph told Redboard.
Exchanges like these live in a highly interoperable cryptocurrency ecosystem and lack proper compliance procedures to avoid illegal financial risks. Redboard also outlined the management’s position on this:
“The administration has made it very clear that ransomware is not a coding problem. This is a cyberspace issue and the focus should be on enhancing cyber defense. ” An ecosystem like parasitic VASPs and darknet shuffling services, not a legal and exponentially growing cryptoeconomy. ”
The financing of terrorism with cryptocurrency is also a major concern of regulators. In fact, it was one of the main factors behind the Indian regulator’s intention to ban the cryptocurrency, which led to panic selling in the region when the developments became known.
Redboard mentioned that there has been a global shift in the post-9/11 world last year, where the battlefield is now largely digital. He added: “We have seen the use of cryptocurrency for terrorist financing, ransom payments and automatic money laundering by government actors such as North Korea. But we’ve also seen law enforcement use blockchain analytics tools […] to track and trace the movement of funds in order to mitigate the risks they pose. These are illegal actors. ”
The fact that most of the cryptocurrencies and blockchains they support come from open sources means that law enforcement, regulators and financial institutions have a better understanding of cash flow than the transaction mechanisms provided by legal release. However, to ensure that cryptocurrencies are not used effectively to avoid sanctions, it is important for financial regulators to have a better understanding of the asset class and the technologies that support it.
“Governments and financial institutions have not yet learned how to handle cryptocurrencies, so they can indeed be the target of crimes,” Charlie Chen, director of marketing told Cointelegraph.