The Russia-Ukraine Crisis Tests Crypto’s Utility

As the US launched an effort against Russia’s use of crypto and fiat to avoid financial penalties for entering into war with Ukraine, the same crypto and fiat are being used to support war activities in Ukraine against Russia. The problem has the potential to divide the world into three groups: those who favor each of the countries, those who oppose them, and those who are indifferent, but it now has a crypto edge to it.

The US Department of Justice has now said that it will investigate and punish cryptocurrency exchanges and their operators who are found to be assisting sanctioned Russians in evading financial sanctions imposed on the country for entering into war with Ukraine.

According to a senior department official, the task force established last week to enforce financial sanctions will also look into lawyers, accountants, and other individuals who are found concealing and facilitating evasion or assisting sanctioned oligarchs and individuals in moving money into or out of Russia in violation of the sanctions.

He stated that the task force would target exchanges and traditional financial institutions who do not have proper anti-money laundering policies and procedures in place, allowing for unlawful transactions. But will these be enough to put a stop to it? Most crypto anti-money laundering attempts, like anti-money laundering initiatives implemented on fiat transactions and payment rails, have proven to be ineffective.

Although this remains to be seen, there are concerns that cryptocurrency might be used to avoid penalties. According to analysts, as a result of the country’s financial sanctions, many more Russians will begin utilizing cryptocurrencies.

Russians collectively own over $214 billion in digital assets, and the country is the world’s third-largest Bitcoin miner. As a result, the country has a sizable crypto user base. It has contributed a significant amount of crypto transactional volume before to the war, but this could alter for the better or for the worse as a result of the sanctions.

It is not apparent whether crypto would aid in dodging penalties in or out of the purview of official censorship. With some degree of anonymity and decentralization, it is unlikely that the DOJ task force efforts will be fruitful if Russians use crypto to evade sanctions, unless a large volume of money is exchanged in a single transaction.

Furthermore, without a blanket prohibition on all transactions entering and exiting Russia, not every transaction would be reported or prevented. No crypto exchange has yet enforced a blanket ban on all Russian transactions, however this may become a possibility as the Russia-Ukraine situation escalates.

According to certain sources, some Russians have used and are using cryptocurrencies to move money from some countries and then re-invest it in real estate and other hard assets in Dubai UAE, afraid that other nations may freeze it as a result of the sanctions. Dubai, like a few other cities, has remained neutral in the Ukraine dispute between Russia and the West. A few other countries have also chosen to remain neutral.

As a result, crypto may be more difficult to utilize in dodging sanctions in countries that have already imposed them. Meanwhile, a portion of the more than $55 million in crypto donations received so far by and for Ukraine has been spent openly fanning the flames of a so-called excellent defensive war front by Ukraine against Russia. The Ukrainian authorities admitted that it was used to purchase vests and other military supplies.

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