Russia’s Billion Dollar Crypto Market Targeted by US for Evading Sanctions

Physical representations of several virtual cryptocurrencies are seen in this photo illustration taken on June 14, 2021. Edgar Su/Reuters

Russia’s billion dollar crypto market is facing new scrutiny from the West in response to Moscow’s invasion of Ukraine amid warnings that digital currencies are being used to help evade economic sanctions.

The U.S. Department of the Treasury on April 20 announced the names of entities and individuals in Russia that it says have been involved in attempts to evade sanctions previously imposed by the United States and its international partners in the wake of the Kremlin’s invasion of Ukraine, which began on Feb. 24.

The department is targeting Russian commercial bank Transkapitalbank and a global network of more than 40 individuals and entities, led by oligarch Konstantin Malofeyev, for allegedly aiding Moscow in evading sanctions.

Companies operating in Russia’s virtual currency mining industry—including BitRiver, which was founded in Russia in 2017 and currently operates out of three offices across the country—were also designated by the Office of Foreign Assets Control, marking the first time that the Treasury Department has designated a virtual currency mining company.

According to data from Cambridge University, Russia is the world’s third-biggest destination for bitcoin mining.

“The United States is committed to ensuring that no asset, no matter how complex, becomes a mechanism for the Putin regime to offset the impact of sanctions,” the Treasury Department said.

Meanwhile, cryptocurrency exchange Binance announced on April 21 that it is limiting services for Russian nationals that have crypto assets exceeding the value of 10,000 euros (about $10,800), in line with the European Union’s fifth package of sanctions against Moscow adopted earlier in April 2022.

Those sanctions, among other things, intended to close loopholes in existing restrictions and included a prohibition on providing “high value” crypto-asset services to Russia.

“Accounts that classify under this restriction will be put into withdrawal-only mode,” Binance said. “No deposits or trading will be permitted on these accounts.”

“The limit also covers all spot, futures, custody wallets, and staked and earned deposits. In addition, all deposits to accounts for Russian nationals or natural persons residing in Russia, or legal entities established in Russia with over 10,000 EUR will be restricted.”

Russian nationals residing in and outside of Russia will not be affected by the move if their cryptocurrency accounts are valued at less than 10,000 euros (about $10,800), Binance said.

The cryptocurrency exchange noted that it believes “all other major exchanges must follow the same rules soon.”

Russia’s crypto market was valued at 10 trillion rubles (about $130 billion) by Prime Minister Mikhail Mishustin earlier in April.

The nation is on track to become the second-largest miner globally this year behind the United States, BitRiver CEO Igor Runets said in a Bloomberg report.

The latest announcement by the United States comes after the International Monetary Fund warned in a new report that bitcoin could allow countries such as Russia to monetize energy resources, “some of which cannot be exported due to sanctions.”

“Monetization happens directly on blockchains and outside the financial system where the sanctions are implemented,” according to the report.

However, it is unclear just how much of an impact the Treasury Department’s announcement will have.

The Wall Street Journal reported that only small sums of money appear to have left Russia via digital currencies, indicating that the crypto market is most likely used by ordinary Russians, and not by expert sanction evaders.

Meanwhile, local Russian newspaper Izvestia reported on April 20 that the country’s Federal Tax Service has backed a plan to allow local firms to “pay for goods and services according to foreign trade contracts and to receive revenue from foreign entities in digital currency.”