Treasury Department Targets Crypto Used to Bypass Russian Sanctions

Ruble-denominated trades with Tether (USDT) Triple

The U.S. is forbidding Americans from using cryptocurrencies to circumnavigate financial sanctions placed on Russia as it seeks to further choke off financial support for the country's wealthy oligarchs. 

Key Takeaways

  • The U.S. Treasury Department has added sanctions that prevent Americans from using cryptocurrencies to circumnavigate financial sanctions placed on Russia. 
  • Washington’s new measures relating to digital assets back up other crippling sanctions, including prohibiting transactions with Russia’s central bank and restricting access to the SWIFT global payments system.
  • U.S. officials have also urged global cryptocurrency exchanges to block sanctioned individuals from accessing their digital assets regardless of location.
  • On Monday, ruble-denominated trades with Tether (USDT) reached almost $30 million, marking the highest turnover this year and a 30% jump in volume from a week earlier.

The Treasury Department regulations specifically prevent U.S. persons from using cryptocurrencies to circumnavigate Washington’s sanctions placed on Russia. The rules published yesterday take effect today, and are part of a broader effort to bolster economic sanctions aimed at Moscow for its invasion of Ukraine. 

Expanding Sanctions 

The U.S. has also placed sanctions on Russia’s central bank and other state-owned and commercial financial institutions. Under the Biden Administration’s latest measures, Americans are effectively prohibited from conducting transactions with Russia’s central bank, with its assets frozen in the United States. Moscow also faces financial pressure from the U.S. and its allies agreeing to limit Russia’s access to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a global payments messaging system. 

Russian financial institutions accounted for 1.5% of SWIFT transactions in 2020, with around $800 billion in annual fund transfers.

Cryptocurrency Exchanges Block Sanctioned Individuals

U.S. officials have also urged prominent global cryptocurrency exchanges to block sanctioned individuals from accessing their digital assets regardless of location. The move coincides with Ukraine's Ministry of Digital Transformation officially requesting that eight cryptocurrency exchanges block Russian users from their platforms amid concerns digital currencies are being used to evade tightening sanctions. 

Coinbase, the largest U.S. crypto exchange, responded by saying it doesn’t have plans to impose a blanket ban on Russian customers but will block trading activity that involves sanctioned individuals or entities, Coindesk reported. Similarly, the world’s largest crypto exchange, Binance, said it won’t unilaterally ban Russian users but would target those with sanctions placed upon them, Coindesk said.

Increase in Ruble-Denominated Crypto Trading Activity

Since the invasion began last Thursday, transactions on centralized crypto exchanges involving the Russian ruble have surged. On Monday alone, ruble-denominated trades with Tether (USDT) — a stablecoin pegged to the U.S. dollar — reached almost $30 million, marking the highest turnover this year and a 30% jump in volume from a week earlier, according to digital asset analysis firm Arcane Research, Reuters said. Bitcoin soared 14.6% Monday, its biggest one-day advance since February last year, while Ethereum, the second-largest cryptocurrency by market capitalization, gained 11.7%.

Tether (USDT) is a blockchain-based cryptocurrency whose tokens in circulation are backed by an equivalent amount of U.S. dollars, making it a stablecoin with a price pegged to USD $1.00.

Article Sources

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  1. U.S. Department of Treasury. "Russian Harmful Foreign Activities Sanctions Regulations."

  2. Financial Times. "The Impact of Throwing Russia Out of Swift."

  3. CoinDesk. "Ukraine Asks Binance, Coinbase, 6 Other Crypto Exchanges to Block Russian Users."

  4. Reuters. "Rouble-Crypto Trading Soars as Sanctions Hit Russian Currency."

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