Criminal Defense Lawyers

Sanctioned Countries Developing Cryptocurrencies

Hey there! With all the news about sanctions on Russia and other countries, there’s been a lot of talk about how cryptocurrencies might allow these sanctioned nations to avoid some of the economic pain. I wanted to break down this complex issue in an easy-to-understand way. I’ll explain what cryptocurrencies are, why sanctioned countries are interested in them, and whether crypto can really help countries like Russia and Iran skirt sanctions.

What are cryptocurrencies?

Cryptocurrencies are digital forms of money that use encryption techniques to control the creation of new units and verify transactions. Unlike traditional currencies like the U.S. dollar that are issued by central banks, cryptocurrencies operate independently of any central authority.

The most well-known cryptocurrency is Bitcoin, which was created in 2009. But there are now thousands of different cryptocurrencies, including Ethereum, Litecoin, and Tether. While they have become popular investments, cryptocurrencies are also used as a means of payment and exchange.

Why are sanctioned countries interested in cryptocurrencies?

When countries like the United States impose economic sanctions on another nation, they restrict that country’s ability to do business and access the global financial system. Sanctions make it harder for sanctioned countries to trade, borrow money, and process payments in traditional currencies like dollars.

This is where cryptocurrencies come in. Because they operate outside the traditional financial system, cryptocurrencies offer sanctioned countries a potential way to circumvent economic restrictions:

• Cryptocurrencies allow direct peer-to-peer transactions, so a sanctioned country could potentially trade directly with a willing partner.
• Cryptocurrency transfers are pseudonymous, making it harder for sanctions enforcers to track payments.
• Some cryptocurrencies like Monero offer enhanced transaction privacy features.
• If a sanctioned country created its own cryptocurrency, it could potentially stimulate economic activity within its borders.

For these reasons, countries like Russia, Venezuela, and Iran have shown significant interest in using cryptocurrencies to mitigate the impact of economic sanctions imposed against them.

Can cryptocurrencies really help countries evade sanctions?

While cryptocurrencies offer sanctioned countries more options, there are still major limitations to using crypto to evade sanctions:

• Scale remains an issue – even Russia would struggle to use crypto to facilitate its $600+ million daily imports.
• Cryptocurrencies are volatile, making trade unpredictable.
• Partners must be willing to accept crypto as payment, which is still rare.
• On- and off-ramps between crypto and traditional currencies are heavily regulated.
• Transaction tracing tools allow monitoring by sanctions enforcers.

Perhaps the biggest challenge with using cryptocurrency to evade sanctions is what’s known as the “last mile” problem. Even if two parties can conduct a crypto transaction, the recipient needs to be able to cash out into traditional currency at some point to actually use the funds. But cryptocurrency exchanges are now subject to the same anti-money laundering and know-your-customer regulations as banks, making this difficult in practice.

While cryptocurrencies offer some helpful features, most experts agree they are not yet a viable solution for countries to completely circumvent broad economic sanctions, especially by major world powers like the U.S. But crypto does make enforcing sanctions more challenging, and sanctioned countries are actively exploring how to leverage digital assets to mitigate the impact of these economic restrictions.

Specific attempts by sanctioned countries to use crypto

Here are some specific examples of how sanctioned countries have tried to use cryptocurrencies to evade sanctions:

Iran

Iran has been under U.S. sanctions for decades. In 2019, Iran formally recognized crypto mining as an industry it could use to work around sanctions. Iran also announced plans to create a state-backed cryptocurrency. While these efforts have had limited success so far, Iran continues to actively explore crypto options.

Russia

Russia has been developing its own central bank digital currency since 2020. Although not technically a cryptocurrency, this digital ruble could potentially help Russia conduct transactions with willing trade partners. However, Russia would still need to convert the digital ruble into traditional currencies. Russia also has a thriving community of cryptocurrency enthusiasts, although major exchanges have now blocked Russian accounts.

North Korea

North Korea has been accused of stealing cryptocurrency through cyber attacks to fund its nuclear program. A United Nations report found that North Korea generated $2 billion for its weapons of mass destruction programs using cyberattacks to steal crypto assets. This illustrates how sanctioned countries could potentially use cryptocurrencies for destructive purposes.

Venezuela

Venezuela launched its own state-backed cryptocurrency called the “Petro” in 2018 specifically as a way to access international financing despite U.S. sanctions. However, the Petro has seen very little adoption. Venezuela’s authoritarian government also hoped the Petro would allow it to circumvent financial sanctions imposed by the U.S. and exert more control over the economy.

Regulatory responses

As sanctioned countries explore cryptocurrencies, regulators worldwide are also taking action such as:

• The U.S. Treasury Department has warned that sanctions may apply to anyone facilitating prohibited transactions, even in crypto.
• The European Union recently proposed strict new regulations, including banning anonymous crypto wallets.
• The Financial Action Task Force, which sets global anti-money laundering standards, has issued guidance for applying risk-based controls to virtual assets.
• The IMF has recommended international coordination on crypto regulations to prevent regulatory arbitrage.
• The U.S. Federal Reserve is exploring a potential digital dollar to modernize payments.
• Some jurisdictions like China and India have banned cryptocurrencies, while others like El Salvador have embraced them.

Overall, the regulatory landscape for cryptocurrencies remains complex and fragmented across jurisdictions. While bans are unlikely to fully stop sanctioned countries from exploring crypto workarounds, increased coordinated international regulations could make it harder for nations to use digital assets to evade sanctions. The technology itself is neutral – it will come down to how governments choose to oversee and control cryptocurrency systems.

The future of crypto and sanctions

Looking ahead, cryptocurrencies will likely continue evolving as sanctioned countries test their potential to circumvent economic restrictions. But crypto is unlikely to become a silver bullet against broad multilateral sanctions anytime soon.

Much will depend on the speed of crypto adoption, the development of privacy-enhancing tools, and the regulatory response from world powers. While sanctions may never be 100% enforceable in any system, regulators are racing to close crypto loopholes. And major exchanges are increasingly wary of violating sanctions.

Rather than an outright solution, crypto may become one of many tools sanctioned countries use to soften the blow of economic restrictions. And the technology could give smaller nations more options to resist the political will of larger powers. But crypto’s decentralized and borderless nature will continue sparking complex debates around sovereignty, censorship, and regulatory jurisdiction.