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Cryptocurrency sanctions against Russia

Cryptocurrency sanctions against Russia

Some of the world's biggest cryptocurrency exchanges are staying in Russia, breaking ranks with mainstream finance in a decision that many experts believe weakens Western attempts to isolate Moscow, following the invasion of Ukraine.

Western sanctions aimed at squeezing Russia's economy and separating it from the global financial system have forced companies and financial firms in their droves to halt business in the country.

But many of the world's largest crypto-exchanges, including Binance and US-based Kraken and Coinbase, have not imposed a blanket ban on Russian customers, despite a plea from the Ukrainian government for one. They stated that they would screen users and block anyone targeted by sanctions.

The standoff illustrates the ideological gulf between the traditional financial sector and the cryptocurrency world, whose roots lie in libertarian ideals and distrust of governments.

The cryptocurrency exchanges argued that cutting off a whole nation would contradict the idea of bitcoin by offering access to payments free of government oversight.

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Cryptocurrency sanctions against Russia

However, some anti-money laundering experts warned that exchanges could be keeping a route open for Russians to transfer money abroad, thereby undermining Western efforts to pressure Russia to back away from the war.

While most exchanges require identity verification, the rigour of "know-you-customer" rules differs across the industry, worrying regulators, who see cryptocurrency as a means for illicit cash.

Anti-money laundering and crypto experts said that people targeted by sanctions may try to transfer funds via so-called privacy coins, a class of cryptocurrency that obscures the identity of users more than bitcoin. Supporters say they offer users greater protection from intrusive monitoring by governments.


Cryptocurrency sanctions against Russia

Russian households and businesses have rushed to convert roubles into foreign currency as the rouble hit a record low of 118 versus the dollar on Wednesday.Cryptocurrency sanctions against Russia There are also signs suggesting that people are trying to hide their savings in cryptocurrency. On Monday, trading volumes between the rouble and cryptocurrencies hit 15.3 billion roubles ($140.7 million). It is a three-fold jump from a week earlier.

An EU official said on Wednesday that the surge had worried regulators, and the European Commission was looking at whether cryptocurrency was being used to get around sanctions.

The crypto exchanges' stance goes against that of several traditional payment companies and fintech firms that have responded to sanctions by restricting services in Russia.

Payments company Wise (WISEa.L) and remittance processor Remitly have, for instance, suspended money-transfer services in Russia, while Apple Inc (AAPL.O) limited the use of Apple Pay.

US payment card giants Visa Inc (V.N) and Mastercard Inc also blocked several multiple Russian financial companies from their networks.


Cryptocurrency sanctions against Russia

Ukraine's Vice Prime Minister Mykhailo Fedorov on Sunday asked cryptocurrency exchanges to block the digital wallet addresses of Russian users, a move that would effectively stamp out their ability to trade cryptocurrency. But as Kraken CEO Jesse Powell stated that

Cryptocurrency sanctions against Russia

he would not back this proposal as blocking users from the whole country "does not necessarily punish those who are actually responsible and may have already prepared for the possibility of blanket sanctions". Jesse Powell added that the legal and regulatory requirements of all jurisdictions must be respected in this situation.

Binance, the world's largest cryptocurrency exchange, also refused to ban all Russian users. It noted that it was blocking the accounts of any clients targeted by sanctions.

According to CryptoCompare, Binance accounts for over 40% of all crypto transactions in roubles. A Binance spokesperson declined to comment on the figure or provide details of any sanctioned users it had blocked.

US cryptocurrency exchange Coinbase Global Inc (COIN.O) also said that it would not impose a blanket ban on transactions involving Russians, though it would block accounts targeted by sanctions.

Joby Carpenter, a specialist in crypto and illicit finance at the Association of Certified Anti-Money Laundering Specialists warned that continuing to operate in Russia likely posed risks to the exchanges themselves.

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