While cryptocurrency exchanges are not blocking access to Russian users, this does not necessarily indicate they are violating sanctions.
That is one crypto exchange executive’s message to The Block, amid an increased spotlight on cryptocurrencies in the aftermath of Russia’s invasion of Ukraine.
“There is a widespread equivalence between ‘not banning sanctioned persons’ and ‘not barring every Russian citizen,'” the executive stated.
The Office of Foreign Assets Control requires cryptocurrency exchanges to blacklist some Russian persons and businesses, including a handful of well-known billionaires. However, they have not gone as far as entirely disconnecting all Russian consumers, which experts say is not required but has been a popular decision by several corporations in light of Russia’s continuing invasion of Ukraine.
Companies ranging from Revolut to PayPal to Google have recently blocked Russian users. The pushback among cryptocurrency exchanges reflects the crypto space’s underlying ethos: support for open financial system access. Additionally, the strategy has spawned headlines such as “Russia’s secret weapon to undermine sanctions,” as Politico wrote in reference to offshore cryptocurrency exchanges that do not verify users’ identities.
Additionally, the effort has huge political implications. A top Ukrainian official urged cryptocurrency exchanges to restrict Russian customers, while Hillary Clinton ridiculed them on MSNBC for adhering to “some, I don’t know, libertarian or whatever mentality.”
Coinbase CEO Brian Armstrong said Friday in a Twitter thread that the company “believes that everyone deserves access to fundamental financial services unless the law requires otherwise.”
While cryptocurrency exchanges may be defying the common practice of restricting access to Russians, Caroline Brown, a partner at Crowell & Morning, notes that this does not imply they are not following with sanction requirements. The Washington, DC-based partner formerly worked for the US Departments of Justice and Treasury.
“While the US has imposed geographic-related penalties on two rebel districts in Ukraine, the US has not yet imposed a complete embargo on Russia,” Brown told The Block in a phone interview.
“Many cryptocurrency exchanges have comprehensive compliance processes in place, which, when properly implemented, should assist in identifying transactions involving sanctioned companies’ wallets and aid to the attempt to resist the use of digital assets to escape sanctions.”
FTX detailed their strategy to identify and block sanctioned users in a Friday blog post. For example, exchanges check the origin of wire transactions to their platform to ensure they are not associated with persons or businesses on OFAC’s Specially Designated Nationals and Blocked Person List.
FTX is as follows: “Exchanges that accept wire transfers as sources of fiat deposits are aware of the name of the originating financial institution and may therefore determine if the currency originated from a sanctioned Russian bank, a blacklisted source, or any other problematic money source. This is a straightforward and efficient method of preventing a substantial amount of direct action by sanctioned entities.”
When sanctioned persons attempt to move bitcoin via an exchange like as FTX, on-chain analytics may be used to “identify cryptocurrency transactions that came from any known criminal or sanctioned source.”
Additionally, heuristics can assist in determining the geographic origin of crypto transactions, and strong machine learning algorithms may find trends in transaction histories and other wallet interactions that suggest heightened risk, according to the FTX blog.
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