Bitcoin sanctions could be next as DOJ unveils crypto crackdown plans

Even if Russia wanted to use crypto to evade sanctions, its economy is too big, the crypto market is too small, and any huge transactions would likely be flagged.

“The size of crypto markets is small compared to what’s happening in the banking sector,” said Fanusie.

The U.S. has placed new debt and equity restrictions on some of Russia’s most critical state-owned enterprises with estimated assets of nearly $1.4 trillion. These entities won’t be able to raise money through the U.S. market, a critical source of capital. The total cryptocurrency market cap is at around $1.9 trillion.

Cryptocurrencies are also thinly traded, which means that it can prove difficult to buy large swaths of digital tokens like bitcoin. The bitcoin-ruble pair maxes out at about $250,000 per trade on Binance, the world’s biggest cryptocurrency exchange, versus the bitcoin and U.S. dollar pairing, which has a maximum market order of around $2.6 million.

Delston tells CNBC that the size of the transactions that the Russian government would need to conduct would be multiples of what individual Russian citizens might be doing right now. Not only would that prove difficult to do in terms of liquidity limitations, but it could also red flag the transaction entirely.

“On the blockchain, the size of the transaction is immediately available, and very sizable transactions would be very apparent to anyone looking,” Delston said, who added that cryptocurrencies aren’t the bastion of anonymity they are so often made out to be.

While crypto has the advantage of not involving wire transfers from bank to bank (which are heavily policed to ensure sanctions compliance), every transfer ever made is captured on a public, permanent, and immutable blockchain ledger and can be traced in nanoseconds.

“If I hand you find a $5 bill, you can never trace that back to me, where if I were to transfer you money through my wallet, that’s always linked back to my wallet ID, which if I went through a regulated exchange, has all of my CIP (Customer Identification Program) information,” explained Felix.

Chainalysis’ Banaei tells CNBC that a single tip in the cryptocurrency market can, within hours, uncover a network of wallet addresses involved in ransomware fraud and money laundering, while a similar tip relating to a traditional bank wire could take several months to reach a similar level of visibility into a criminal network and its money laundering.  

While there are privacy tokens like monero, dash, and zcash, which have additional anonymity built into them, they tend not to be as liquid as other tokens, since many regulated exchanges have chosen not to list them due to regulatory concerns.

There is also the question of what to do once you have the crypto in hand.

“It’s hard to buy stuff with cryptocurrency, especially big stuff,” Delston tells CNBC. He says that he doesn’t know of any major electronics companies, food exporters, or spare parts manufacturers that accept cryptocurrency as payment, which he notes are “all the kinds of things that a country like Russia would need, because it doesn’t produce it on its own.”

And while historically crypto exchange compliance with the global sanctions regime hasn’t been great, Fanusie says it’s actually getting much better, as these platforms beef up their internal compliance teams.

Federal prosecutors are adding muscle to their crypto policing duties, as well. In February, the U.S. Justice Department unveiled a new cryptocurrency enforcement team.

This content was originally published here.


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