As Russia invaded Ukraine, the flames of war are now blazing. Russia is now placed under global economic sanctions with world leaders calling all business owners worldwide to immediately stop transacting with them. The United States and 30 other countries with more than 700 companies have already imposed sanctions on Russia. US President Joe Biden stated:
“Putin chose this war, and now he and his country will bear the consequences.”
Among the imposed sanctions includes cutting Russia out of the SWIFT payment system that enables the transfers of money from bank to bank across the globe with hopes to place Russia under economic pressure. It also sends a unified statement of the global community against Russia’s dubbed “barbaric” actions and crippling Russia’s ability to conduct business across borders. Amid these sanctions, the Biden administration has called for crypto exchanges to join in sanctioning Russia with fears that Kremlin will use cryptocurrencies to evade economic embargoes. It can be recalled that Iran and Venezuela turned to BTC (bitcoin) to dodge the economic sanctions implemented by the United States. In March, President Biden even signed an executive order on crypto to circumvent any attempts by Russia to utilize these digital assets as a way around sanctions. Hence, the inclusion of crypto exchanges despite the absence of transparency and definite regulations. Although this possibility has been downplayed by the US regulatory bodies, US Treasury Secretary Janet Yellen commented on the matter.
“We will continue to look at how the sanctions work and evaluate whether or not there are liquid leakages and we have the possibility to address them. I often hear cryptocurrency mentioned and that is a channel to be watched.”
In a statement by Him Das, Acting Director, Financial Crimes Enforcement Network, added:
“Although we have not seen widespread evasion of our sanctions using methods such as cryptocurrency, prompt reporting of suspicious activity contributes to… our efforts to support Ukraine and its people.”
But could be, to everyone’s surprise, owners of leading trading platforms like Binance and Coinbase resisted the idea of a total ban but will restrict individuals included in the international list. Changpeng Zhao or “CZ”, founder and CEO of Binance, the leading crypto exchange stated:
“There are a few hundred individuals that are on the international sanctions list in Russia, mostly politicians, and we follow that very, very strictly,” Zhao told BBC Radio 4’s Today programme.”
He further added:
“We differentiate between the Russian politicians who start wars and the normal people; many normal Russians do not agree with war.”
He reiterated that he does not believe that cryptocurrencies with transactions encrypted on a decentralized ledger are an effective way to avoid sanctions.
“If people want to evade sanctions, there’s always multiple methods. You can avoid sanctions using US dollars, using cash, using diamonds, using gold. I don’t think crypto is anything special there.”
But the main reason behind Binance’s decision was a striking one.
“To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists.”
Coinbase has the same stand as Binance. Brian Armstrong, Coinbase founder, and CEO expressed in a tweet that the company is willing to comply with the law.
“Every US company has to follow the law – it doesn’t matter if your company handles dollars, crypto, gold, real estate or even non financial assets. Sanctions laws apply to all US people and businesses.”
But implementing a blanket is definitely a “no” for Coinbase as stated in Armstrong’s tweet.
“In addition, we are not preemptively banning all Russians from using Coinbase. We believe everyone deserves access to basic financial services unless the law says otherwise.”
Even Jesse Powell of Kraken has this to say about the matter.
“Bitcoin is the embodiment of libertarian values, which strongly favour individualism and human rights.”
Brad Garlinghouse, CEO of Ripple denounced the allegation that cryptocurrencies can be used to avoid sanctions. He stressed that these platforms have implemented stringent policies and have even required their customers to a KYC in compliance with Anti-Money Laundering regulations.
Shaun Leong, partner at Singapore law practice Withers KhattarWong emphasized the transparency of crypto transactions like BTC (bitcoin) in his statement with Nikkie Asia.
“The blockchain never forgets, and its immutability means that users invariably leave behind a record that can be traced, even if the cryptocurrency has passed through several layers of ownership.”
But even crypto exchanges were divided on the issue of implementing a blanket ban on Russian users. South Korean exchanges Bithumb, Coinone, Upbit, and Korbit were on the other side and have implemented a preemptive ban on Russian users. This is in line with the South Korean government imposing a ban on Russia.
In March, the Japanese authorities ordered crypto exchanges in the country to block Russian users to their platforms. Through an administrative order, Japan’s Financial Services Agency and Ministry of Finance ordered trading platforms to restrict transactions from countries covered by the sanction. Bitwell, a UK-based cryptocurrency exchange declined to comply outright since this is opposed to the exchange’s vision according to a report by Yahoo. The report further states:
“BitWell upholds the principle of privacy and inviolability of private assets and will never allow the legitimate rights of Russian users to be plundered without reason. The platform will continue to uphold privacy, fairness and freedom and will not freeze any Russian users’ assets and will always be with its users.”
With the majority of exchanges refusing to implement a preemptive ban on Russian users despite calls from world leaders, will this put the crypto market in a tight spot? Will it result in more stringent regulations in an industry once considered a “bubble”? Your thoughts.