As noted by Carolyn Malcolm, Head of International Policy at Chainalysis, the transparent nature of blockchain technology makes it relatively easy for crypto-intelligence companies to track funds associated with sanctioned entities.
“We are in a completely unique position because of the openness, continuity and consistency of this public record,” Malcolm explained in an exclusive interview with Cointelegraph.
Governments around the world have expressed concern that Russia may use cryptocurrency to evade sanctions imposed in response to its military offensive against Ukraine.
In response to these concerns, Malcolm noted that in recent years there have been significant improvements in the anti-money laundering and anti-terrorism system in the cryptocurrency industry.
This means that under their jurisdiction, cryptocurrency exchanges are still required to use the same penalties as banks and other traditional financial intermediaries.
While sanctioned individuals can move funds to private wallets, these movements can be easily tracked using blockchain analysis tools such as those developed by Chainalysis. In most cases, these organizations will have to rely on a central starting point for withdrawing funds.
“We still do not live in a world where you can survive in the cryptocurrency economy and buy all the goods and services you want to buy,” Malcolm explains.
At this point, the exchange equipped with Chainalyisis technology will receive a notification to report the funds in accordance with the penalties, which in turn will allow the exchange to freeze the funds.
According to Malcolm, blockchain intelligence technologies make cryptocurrencies less suitable for evading penalties than traditional financial instruments.
“The blockchain crypto environment is more streamlined […] than any tool that could disrupt Russia’s use of a traditional bank transfer network or even physical money to avoid sanctions,” Malcolm said.
There is still concern that sanctioned entities may continue to rely on unauthorized decentralized protocols that do not require anti-money laundering / knowledge of your customer actions.
“We are also currently working on developing new and lighter tools that will enable decentralized protocols and platforms to easily perform basic sanction controls to help manage reputational risk and sanctions,” Malcolm added.
The blockchain ecosystem is well prepared for potential Russian attempts to circumvent sanctions using cryptocurrency.
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