Crypto Exchanges Won’t Bar Russians
Several largest cryptocurrency exchanges in the world are remaining in Russia. It defies conventional wisdom in a move that analysts believe undermines Western efforts to isolate Moscow in the wake of the invasion of Ukraine.
Western sanctions seek to strangle Russia’s economy and cut it off from the world financial system. So, they have compelled a large number of businesses and financial institutions to cease operations there.
However, in spite of a request from the Ukrainian government, many of the biggest cryptocurrency exchanges have refrained from outright banning Russian users. Some of these big names include Binance, Kraken, and Coinbase. Yet, they promised to filter users and ban anyone subject to punishment. As a result, we can say that it’ll be difficult for Russia’s rivals to put an economic sanction on it.
Traditional Financial Sector VS Crypto World
The standoff highlights the ideological divide between the traditional financial industry and the cryptocurrency industry. It has its roots in libertarian values and mistrust of centralized authorities.
Bitcoin’s sole mission is to provide access to payments without governmental interference. Therefore, the crypto exchanges said that blocking off an entire country would go against its principles.
However, some anti-money laundering experts cautioned that the transactions might be giving Russians a method to transfer money outside. And thus, it undermines Western efforts to put pressure on Moscow to end the conflict.
Even Ross Delston, a U.S. lawyer and former financial regulator, said that crypto provides an option for a flight to safety that would not have existed otherwise.
While the majority of exchanges do demand ID verification, the industry’s “KYC” requirements vary in rigor. It worries regulators who view cryptocurrency as a conduit for illicit funds.
However, according to anti-money laundering and cryptocurrency experts, those subject to sanctions may attempt to move money using so-called privacy coins. It’s a class of cryptocurrencies that hides user identities more thoroughly than bitcoin. Meanwhile, its supporters say that they provide consumers with better safety against invasive government surveillance.
Rush Out Of Roubles
The rouble hit a historic low of 110 against the dollar at the start of March. It prompted people and companies in Russia to rush to exchange their roubles for foreign money.
Moreover, the trade volumes between the rouble and cryptocurrencies reached 15.3 billion roubles ($140.7 million) later on. According to researcher CryptoCompare, it was a three-fold increase from a week earlier. This shows that individuals were rushing to convert money to cryptocurrencies.
As a result, regulators started worrying about the increase. Moreover, the European Commission started investigating whether cryptocurrency was being used to circumvent sanctions.
It is difficult to convert digital currencies to conventional currency through financial institutions subject to anti-money laundering regulations. Therefore, the U.S. Treasury stated that neither Russian enterprises nor individuals would be able to use cryptocurrency to circumvent sanctions.
Also, the spokesperson added that crypto exchanges must follow anti-money laundering regulations. Moreover, they are subject to sanctions. He added that even at the level of individual elites, laundering billions of dollars through digital wallets would expose themselves to those tracking flows within virtual currency markets.
However, British banking watchdog requests for comment on this story were not answered.
The stance of the cryptocurrency exchanges is in opposition to that of many fintech companies and traditional payment providers that have responded to sanctions by limiting services in Russia.
For example, payments business Wise and remittance processor Remitly have banned money-transfer services in Russia. Meanwhile, Apple Inc curtailed the use of Apple Pay.
Many Russian financial institutions were also barred from the networks of the two largest U.S. payment card companies. These are Visa Inc. and Mastercard Inc.
Libertarian Values
Mykhailo Fedorov, the vice prime minister of Ukraine, requested that cryptocurrency exchanges restrict the digital wallet addresses of Russian users. He intended it to be a move that’d prevent them from trading cryptocurrency.
However, Jesse Powell, the CEO of Kraken, declared that he would not give. And thus, he referred to bitcoin as the “embodiment of libertarian ideas.”
A Kraken representative stated that blocking users from a whole nation “does not necessarily punish those who are genuinely responsible and who may have already planned for the potential of blanket bans.”
They continued by saying that Kraken complies with all legal and regulatory obligations in all areas in which it operates.
Similarly, the biggest cryptocurrency exchange in the world, Binance, declined to prohibit all Russian users. However, it claims to be suspending the accounts of any customers who are the target of sanctions. It stated that “the motive behind Crypto is to bring greater financial independence for people across the globe.”
According to CryptoCompare, almost 40% of all cryptocurrency deals in roubles take place on Binance. However, a representative for Binance declined to comment on the number or provide information about any sanctioned users it has blacklisted.
Meanwhile, Coinbase Global Inc., a U.S. cryptocurrency exchange, also stated that it would not outright prohibit transactions involving Russians. However, it would instead block the accounts of those who are the subject of sanctions.
But, Joby Carpenter, a specialist in cryptocurrency and illegal finance at the Association of Certified Anti-Money Laundering Specialists, cautioned that continuing to operate in Russia probably raises concerns for exchanges themselves.
Carpenter stated that to avoid breaking any sanctions or anti-terrorism laws, “exchanges and, ultimately, banks where crypto assets off-ramp will need to be vigilant to these attempts.”
