G7, EU & US: sanctions cannot be circumvented with bitcoin just like that

Russia cannot simply circumvent the imposed sanctions with bitcoin, the G7, the EU and the US have said. Various statements clarify that bitcoin companies are regulated, illicit money flows are closely monitored and measures are in place to prevent Russia or the Russian oligarchs from circumventing sanctions with bitcoin.

For example, the countries of the G7 clarified in a joint statement that bitcoin also falls within the scope of the sanctions. ?ǣIt is widely understood that our current sanctions already cover crypto assets,?ǥ the statement read. ?ǣWe are committed to taking measures to better detect and deter illegal activity, and we will impose costs on illegal Russian actors who use digital assets to enhance or transfer their wealth, consistent with our national processes.?ǥ

The EU also clarified that bitcoin companies must comply with the restrictions. ?ǣThe EU reaffirmed the common understanding that loans and credit can be provided in any way, including in crypto-assets, and also clarified the notion of ‘transferable securities’ to make it clear that crypto-assets are included, thus ensuring for a proper implementation of the existing restrictions” , states a press release. De Nederlandsche Bank (DNB) confirmed this in a similar message.

In the US, it was the Department’s Office of Foreign Assets Control (OFAC) that pointed out the same thing. Treasury Secretary Janet Yellen added on Wednesday: ?ǣI often hear that cryptocurrency is mentioned and that is a channel to watch?ǥ . However, she also pointed out that anti-money laundering regulations and sanctions laws apply to bitcoin companies. “It’s not that the industry is one where things can be avoided,” said Yellen.

Gatekeepers

They appear to be responses to concerns expressed by politicians and in the media. Due to bitcoin’s decentralized nature, which makes it technically impossible to block transactions or confiscate funds, some are questioning whether it will allow Russia to circumvent sanctions.

Although the Bitcoin network is decentralized, Bitcoin companies are not. Some exchanges initially spoke out boldly against financial censorship, but in fact, Bitcoin companies around the world are tightly regulated in a manner similar to banks. In the Netherlands, the Wwft and the Sanctions Act 1977, among others, are applicable. These stipulate, among other things, that customers must identify themselves, be screened against the sanctions list and require transaction monitoring, whereby suspicious transactions are reported.

The sanction list contains various bitcoin addresses and larger amounts immediately stand out when converting to a traditional currency. Moreover, liquidity is often lacking for really large amounts. With privacy-enhancing techniques such as Lighting and CoinJoin, the capacity is also limited and normal blockchain transactions leave indelible traces, which means that the chance of being caught is high.

Christine Lagarde, President of the European Central Bank (ECB), has already pointed this out. ?ǣBy the way, it is nice and good to have cryptos, but it is not everything,?ǥ she stated, ?ǣYou have to move from crypto to stablecoins and eventually to a fiat currency. There are ways to cut through the smokescreen and make sure ensure that criminal activity is detected and properly dealt with,” said Lagarde.

Bitcoin to bitcoin

If Russia skips the conversion to a traditional currency and pays suppliers in bitcoin, as Ukraine recently did, then the recipient of the transaction, or anyone further down the chain, would run into basically the same problems. As long as bitcoin is not yet a universally accepted means of payment, bills will have to be paid in a fiat currency at some point. And if bitcoin does become universally accepted, its unexplained income is still a good way to get caught.

The laundering of black money is therefore not easy with bitcoin and in principle just as difficult as with any other kind of black money. Bitcoin is therefore not very popular among criminals. According to research, only 0.15% of the total transaction volume is related to illegal activity.

In an earlier article you can read how bitcoin plays a role in the war in Ukraine in various ways.

s: Number 10, license CC BY-NC-ND 2.0

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