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TematicheRussia e Spazio Post-sovieticoCould Russia Potentially Use Cryptocurrency to Circumvent Sanctions?

Could Russia Potentially Use Cryptocurrency to Circumvent Sanctions?


Cryptocurrencies’ market value has significantly increased since the inception of the first cryptocurrency in 2009. The alleged motivation behind the creation of cryptocurrency has been to design and develop an alternative means of exchange that is decentralized and independent of the government, central bank, or any other third entity. Currently, Bitcoin ranks among the top cryptocurrencies and is commonly used in exchange for products, services, and other currencies, even though it is susceptible to anonymous web criminals, drug dealers, and other entities that perform illegal transactions. Also, Bitcoin value is determined on the basis of speculation; its value is determined by people and businesses using it as an exchange.

The rise of cryptocurrency presents new opportunities. It becomes particularly noticeable when payments and financial services become cheaper, quicker, and more accessible, and more importantly, it enables swift flow across borders. Therefore, it is important to view it in the context of international relations. Given the current state of international relations especially in the case of the Russia-Ukraine crisis and how the ‘barrage’ of sanctions is being imposed on Russia, would Moscow be able to employ crypto as an instrument to circumvent capital control?

Financial measures taken by the US and its European allies have disconnected 70 percent of the Russian banking networks from SWIFT- an international interbank financial messaging service. 

On top of that, the sanctions against the Central Bank of Russia prohibit Russia’s financial transactions and its access to foreign capital which has hit hard on the Russian stock, bond, and currency market. The Russian ruble, according to current figures, has devaluated from 74.72 USD on February 11 to 120.38 USD on March 11, a more than 40 percent fall in ruble value. In response, the Russian central bank decided to raise interest rates from 9.5 percent to 20 percent and to close trading of stocks from March 12 to March 18 on the Moscow Stock Exchange to prevent further currency devaluation and financial instability.

Cryptocurrencies constitute a hedge for 46 percent of Russian retail investors, and according to recent data, Russian transactions annually account for $5 billion in cryptocurrency. Since the Russian invasion of Ukraine, the volume of transactions from ruble into Bitcoin and Tether (a cryptocurrency) has spiked due to the collapse of the ruble.   In the past three weeks, the trading volume of rubble for Bitcoin has reached more than 15 billion rubles (see the following figure). 

Source: CryptoCompare, CryptoCompare Index BTC for 1 Month.

In the past, countries such as Iran, North Korea, and Venezuela, have used cryptocurrency to circumvent international sanctions. In 2019, United Nations Security Council reported an estimated amount of $571 cryptocurrency theft by North Korea to avoid sanctions. The sanctions prohibited North Korea from dealing with other countries due to concerns about the acquisition of nuclear weapons. Sanctions have severely restricted North Korea’s ability to make deals with other countries, however, it still successfully managed to enter cyberspace, often with pernicious goals. For instance, in 2018, North Korean hackers were able to steal more than 100 million in cryptocurrency exchanges and launder the stolen funds with the help of two Chinese nationals Tian Yinyin and Li Jiadong. Similarly, Iran’s economy has been damaged by sanctions that restrict Iranian banks from dealing with US and EU banks. Since tracing transactions with Bitcoin is difficult and users remain anonymous, Iran has become a hotspot for Bitcoin because it allows them to pay for international transactions and make deals around the world. Additionally, in 2019, in an effort to avoid sanctions imposed by the US, Venezuela’s government sought to launch its national cryptocurrency, known as the Petro.

Cryptocurrencies thus might enable Russia to circumvent sanctions to a certain limit. For instance, the absence of intermediaries like banks and the pseudo-anonymous nature of cryptocurrencies could serve as a way to get around some financial restrictions against Russia. Individuals and/or entities can perform illegal transactions while hiding their identities in the crypto space. Unlike fiat money, cryptocurrencies are intangible and are transacted through the internet using digital wallets, which store public and/or private keys. Strong cryptographic keys keep the financial transactions secure, control creations and addition of new units and verify asset transfers. The identities of clients are obscured to third parties and users in cryptocurrency transactions can retain a high level of anonymity. Because of this anonymity businesses in countries under sanctions have been able to use Bitcoin and other cryptocurrencies to circumvent international sanctions. 

Russian Oligarchs are also the ones subject to sanctions by US and EU but US lawmakers including Senators Elizabeth Warren have expressed concerns that Russian oligarchs might use cryptocurrency to hide cross-border transactions in order to avoid sanctions. However, the US government is trying to ensure that crypto businesses are compliant with sanctions against Russia. In a recent statement, Chainalysis expressed a positive view on the ability of the cryptocurrency industry to trace attempts by Russian actors to evade sanctions. Measures adopted by the cryptocurrency industry consist of an alert system on crypto-wallets that identifies clients in the list of sanctioned individuals or entities. Furthermore, cryptocurrencies are built on blockchain that records transactions on publicly available ledgers, therefore, it allows tracking of users. Nevertheless, not all cryptocurrency companies have incentives to restrict Russia from access to the crypto-fiat exchange. Implementing sanctions compliance by the cryptocurrency industry can be challenging due to the fact that the sanctioned entities might use hosted wallets, where the funds are controlled by third-party users, and tracing the main source of funds and freezing their assets, in this case, would be difficult. A case in point here would be cryptocurrency exchanges that allow users to exchange assets and/or fiat money to cryptocurrency. If US citizens trade in cryptocurrencies that comply with US sanction laws, monitoring and detecting suspicious activities related to sanctioned persons, or entities is possible. But, if the cryptocurrency exchange allows the participation of sanctioned parties in trading, US citizens might end up violating sanctions. 

It is, however, worth noting that Russia needs large-scale trade in the cryptocurrency market to circumvent sanctions, which is essentially impossible considering the insufficient trading volumes of cryptocurrencies, particularly of Bitcoin. Contrary to fiat money, cryptocurrencies have a limited supply. Bitcoin, for instance, has a predefined maximum quantity of supply. At the moment, there are 18.98 million Bitcoins in circulation. The more people or oligarchs in Russia buy a cryptocurrency with a finite supply such as Bitcoin, the higher the price would become. This makes, Bitcoin highly volatile and susceptible to speculations which spike the risks of investment and financial instability. On top of that, it should be noted that cryptocurrencies are digital tokens that represent money and other assets used to make electronic transactions. They are not the actual money and it takes time to convert the intangible money to fiat money using brokers or banks which in the case of Russia is risky and difficult.

In view of recent Russia’s attack on Ukraine, major cryptocurrency companies have taken measures to counter evasion of sanctions through cryptocurrency. Today, however, governments have better cyber and legal capabilities that help them counter the risks posed by cryptocurrencies. Even though the source of funds transferred might be unknown to the sanctioning governments, they can detect the quantity of moved and investigate suspicious activities. Although Russia might be able to use a network of exchanges to conceal its ownership of cryptocurrency, cryptocurrency cannot unload the weight of sanctions from Russia’s economy.


Bank of Russia. “Official Exchange Rates on Selected Date.” Accessed March 12, 2022. https://www.cbr.ru/eng/currency_base/daily/?UniDbQuery.Posted=True&UniDbQuery.To=11.02.2022.

Bloackchain. “Total Circulating Bitcoin.” Accessed March 15, 2022. https://www.blockchain.com/charts/total-bitcoins.

Brett, Jason. “Trend Continues For Countries Looking To Evade U.S. Sanctions Using Crypto.” Accessed March 15, 2022. https://www.forbes.com/sites/jasonbrett/2020/01/29/trend-continues-for-countries-looking-to-evade-us-sanctions-using-crypto/?sh=52fe367659ff.

Chainanalysis. “History Has Its Eyes on Crypto. Let’s Prove It’s on the Right Side.” Accessed March 11, 2022. https://blog.chainalysis.com/reports/sanctions-screening-tools/.

CryptoCompare. “CryptoCompare Index Bitcoin (BTC) – RUB Historical Price.” Accessed March 12, 2022. https://www.cryptocompare.com/coins/btc/overview/RUB.

Ellsworth, Brian. “Special Report: In Venezuela, New Cryptocurrency Is Nowhere to Be Found.” Accessed March 15, 2022. https://www.theguardian.com/world/2017/dec/04/venezuela-to-launch-cryptocurrency-to-combat-us-blockade-maduro-says.

He, Dong, Karl Habermeier, Ross Leckow, Vikram Haksar, Yasmin Almeida, Mikari Kashima, Nadim Kyriakos-Saad, et al. “International Monetary Fund: Virtual Currencies and Beyond: Initial Considerations.” IMF Staff Discussion Note, 2016, SDN/16/03. https://www.imf.org/external/pubs/ft/sdn/2016/sdn1603.pdf.

Jacobson, Andrew. “Economic Sanctions: Challenges Confronting the Cryptocurrency Industry.” Accessed March 15, 2022. https://www.ibanet.org/article/BDF997FB-EB79-498A-88F5-C6CEACF7DDD9.

Milmo, Dan. “Could Putin Be Exploring Cryptocurrencies to Bypass Western Sanctions?” Accessed March 13, 2022. https://www.theguardian.com/business/2022/mar/01/could-putin-be-exploring-cryptocurrencies-to-bypass-western-sanctions-russia-ukraine-invasion.

Russia, Bank of. “Key Rate and Trading on Moscow Exchange on 14 — 18 March 2022.” Accessed March 15, 2022. https://www.cbr.ru/eng/.

U.S. Department of the Treasury. “Treasury Sanctions Individuals Laundering Cryptocurrency for Lazarus Group.” Accessed March 13, 2022. https://home.treasury.gov/news/press-releases/sm924.

Walsh, Ben. “The Unprecedented American Sanctions on Russia, Explained.” Accessed March 9, 2022. https://www.vox.com/22968949/russia-sanctions-swift-economy-mcdonalds.

Warren, Elizabeth. “Senators Warren, Warner, Brown, Reed Express Concerns to Treasury Regarding Potential Use of Cryptocurrency to Evade Sanctions,” n.d.

Yahoo Finance. “What Was the Most Popular Cryptocurrency in Russia in 2021?” Accessed December 27, 2021. https://finance.yahoo.com/news/most-popular-cryptocurrency-russia-2021-100030115.html.

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