Russian Treasury Department Avoids Sanctions By Using Crypto

Russian President Vladimir Putin could use cryptocurrencies to evade US and other sanctions leveled at the Kremlin for its unprovoked invasion of Ukraine, a Treasury official told lawmakers on Tuesday.

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“Yes, senator, it can,” Elizabeth Rosenberg, assistant secretary of the Treasury for Terrorist Financing and Financial Crimes, said when asked by Sen. Elizabeth Warren, D-Mass., if digital assets could be used to circumvent sanctions.

The Senate Banking, Housing, and Urban Affairs Committee convened the hearing to discuss next steps to deter Russia’s continued aggression against Ukraine, such as seizing the assets of Russian oligarchs and agreeing of the G7 to cap the price of Russian oil.

Warren said she has been concerned about the potential for cryptocurrency to be used by Russian elites to circumvent sanctions since the country was invaded in February.

“At the time, we already knew that countries like North Korea had used crypto to circumvent sanctions and launder at least hundreds of millions of dollars. And Russia could easily be one of them,” Warren said.

The Treasury Department has previously identified Russian entities attempting to circumvent sanctions with crypto. Twenty-two individuals and two entities, including a neo-Nazi paramilitary group, were named this month for helping Russia digitally fund the war against Ukraine.

In April, the agency targeted a virtual currency mining agency for the first time, as well as oligarch Konstantin Malofeyev, private commercial bank Public Joint Stock Company Transkapitalbank and 40 other individuals and entities led by Malofeyev.

Darknet Market Hydra, based in Russia, and Garantex, a virtual currency exchange, were also sanctioned that month in part to cut off opportunities for potential sanctions evasion.

The US government has blocked access to all of their assets based in the United States or held by someone residing in the US Treasury and has also blocked transactions between those who are sanctioned and with anyone in the United States.

But Russia has been planning ahead by developing its own digital currency as early as February in hopes of trading directly with countries that will accept the funds without first converting to dollars. The country has also developed tools to hide the origin of transactions since crypto exchanges can be tracked on the underlying blockchain.

Rosenberg confirmed that anonymity-enhancing technologies and other tools used to mask digital transactions can interfere with enforcement of sanctions. The Treasury issued its first-ever sanctions against these “mixers” in May and sanctioned another, “Tornado Cash”, in August.

Warren mentioned that Coinbase, a leading US cryptocurrency exchange, filed a lawsuit this month against the Treasury Department on behalf of Tornado Cash users.

Coinbase Chief Legal Officer Paul Grewal told CNBC the sanctions set “a dangerous precedent,” but Rosenberg called them effective.

“Where they can serve as a deterrent to any criminal (who) would seek to use a blender in order to launder their funds, proceeds of corruption or any criminal activity, this is an effective avenue we can use to report that we cannot tolerate money laundering,” Rosenberg said.

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Russian Treasury Department Avoids Sanctions By Using Crypto


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