Sanctioned Russian Actors Are Using Crypto to Launder Their Assets - TheStreet

Well-connected Russians who have been looking to hide sources of their wealth from international sanctions have stepped up efforts to launder those funds through cryptocurrencies, a new report said Wednesday.

Watchdog crypto firm Elliptic said its research showed millions of crypto addresses linked to criminal activity, and 400 virtual asset service providers where rubles can be used to buy cryptocurrencies.

“We have directly linked more than 15 million crypto addresses to criminal activity with a nexus in Russia,” Simone Maini, chief executive of Elliptic, said in a blog post. 

“Digital asset businesses and exchanges can screen transactions and wallets for exposure to this activity and ensure that the proceeds cannot be laundered.”

Both methods circumvent sanctions placed on Russians with ties to President Vladimir Putin’s administration or who have been identified playing a part in the country’s recent invasion of Ukraine.

The report is one of the first tangible signs that Russians under pressure from sanctions from the European Union, the United States, the United Kingdom and a growing list of other nations are finding ways to hide and launder their wealth and assets from regulators.

Maini said that Elliptic is “actively investigating” cryptoasset wallets that the organization said can be linked to “Russian officials and oligarchs subject to sanctions.”

“We have identified several hundred thousand crypto addresses linked to Russia-based sanctioned actors,” she said. “This goes beyond those included in sanctions lists to include other addresses that we have been able to associate with these actors through our own analysis.” 

First Signs of Money Laundering by the Sanctioned

Elliptic’s report is one of the first public signs that groups that monitor money laundering and crypto assets have found concrete evidence that those systems are being used to launder money belonging to sanctioned Russians.

Last week, American President Joe Biden announced new sanctions on the crypto assets of certain Russians, an additional piece in the puzzle of how the U.S. intends to punish people associated with the invasion of Ukraine.

How American or international regulators may monitor crypto currencies and how they are being bought and sold has been one of the great questions surrounding the usefulness of sanctions as a diplomatic tool.

With little appetite from NATO for a ground war with Russia and its allies, the nations in the group have increasingly turned to economic penalties as a way to create a chokehold on the vast wealth held by the Russian elite or Kremlin-adjacent.

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The U.S. did have some blueprint for how to oversee crypto transactions: The country has been testing similar bans on unfriendly nations like Iran and North Korea.

Here’s How it Works

Maini offers the helpful analogy of how crypto wallets are much more like digital exchanges that an old-fashioned bank account. 

“Funds can be moved through thousands of new addresses at the click of a button – meaning that sanctions screening requires more than simply matching customers’ wallet addresses with those published on sanctions lists in order to be effective,” Maini writes.

They were designed as mysterious tokens specifically to make their origin and destinations opaque, but there are ways to track what is happening with digital assets.

“Funds should and can be traced through the blockchain ledger to screen them for links to all known and inferred cryptoasset addresses controlled by sanctioned actors,” she said in her post.

Sanctions List Growing Weekly

The number of Russians actually on the sanctions list has been growing seemingly by the day, but each week in a war that is nearly three weeks old has brought new names to the roster.

At last count, several hundred Russians, including oligarchs and former KGB operatives, as well as second-generation wealth that has found welcome society in places like New York City and London, were on the U.S. list of the sanctioned — including almost 400 members of the Duma, Russia’s parliament.

Do Sanctions Matter if They Can Be Avoided?

The biggest question now is, if organizations like Elliptic can so quickly find millions of Russian-linked accounts that are likely candidates for money laundering, how effective are the sanctions that are in place?

The most likely answer is that if Elliptic has found this information, foreign governments likely have, too, and are working furiously on a way to stanch the flow of laundered money coming in and out of those networks.

If they can do so quickly and effectively remains to be seen.

“As an industry, we have the power and responsibility to shape how digital assets are used, and to prevent them from becoming a haven for money launderers and kleptocrats,” Maini wrote. 

“We have an opportunity now to demonstrate that a financial system based on crypto – with the right controls and protections in place – will be safer, fairer and less prone to abuse than the one we have now.”

This content was originally published here.


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