As the bite of U.S. and European sanctions on Russian oligarchs settle in—the country’s top billionaires have lost $80 billion in recent days—concerns are mounting that these elites will try to skirt sanctions by flocking to cryptocurrencies to fly under the radar.
And there are plenty of ways panicked oligarchs could take advantage of cryptocurrency trading to shuffle their funds around to hide their massive wealth, experts warn.
“Russian sanctioned individuals potentially may try to use crypto in order to move rubles into crypto, ultimately offramp crypto into other currencies and use them,” Ari Redbord, a former senior adviser at the Treasury Department, told The Daily Beast.
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It’s not just Russian oligarchs who could be turning to cryptocurrency as a haven.
Signs are mounting that regular Russians are turning to cryptocurrency companies to help them as they watch their wealth shrink before their very eyes thanks to the collapsing ruble, according to data cryptocurrency analysis firm Chainalysis shared with The Daily Beast.
“Since the invasion, there’s been an uptick in transaction volumes for trading pairs involving the Russian ruble, with two spikes on 2/24 and 2/28,” Chainalysis’ head of public policy for North America, Salman Banaei, told The Daily Beast.
Analysis from cryptocurrency analysis firm Kaiko found similar surges.
One official with knowledge of the mounting campaign to seize the assets of sanctioned tycoons told The Daily Beast that wealthy Russians have already been observed meeting in bars, restaurants, and clubs with longtime financiers in Europe’s economic capitals—likely gaming out their options for how to rescue their fortunes from Russia’s tanking economy.
“Frankfurt, Geneva, London,” the official said, speaking on background due to the sensitivity of the rolling sanctions efforts. “Anywhere a G&T costs 30 dollars, a Russian is considering his financial options.”
The fear that cryptocurrencies might provide Russian oligarchs a way to slither out from under tough U.S. sanctions is rattling the halls of Congress. Sens. Elizabeth Warren (D-MA), Mark Warner (D-VA), Sherrod Brown (D-OH), and Jack Reed (D-RI), sent a letter to Treasury Secretary Janet Yellen Wednesday requesting the Treasury Department explain exactly how it will oversee cryptocurrency companies to make sure they enforce economic sanctions against Russian oligarchs.
The same day the lawmakers sent the letter, Yellen said the Treasury will be on the lookout for sanctions evasion. “We will continue to look at how the sanctions work and evaluate whether or not there are leakages, and we have the possibility to address them,” Yellen said in remarks at the University of Illinois Chicago.
But there’s growing concern among officials that some of the oligarchs might get away with some cryptocurrency trickery anyway. The official with knowledge of the administration’s campaign to seize Russian oligarchs’ assets expressed deep frustration with the slow pace of the Department of Justice’s would-be investigations in Europe, and growing concern that billions of sanctioned dollars could disappear into the Ethereum in the time it takes the administration’s “Task Force KleptoCapture” to begin seizing assets.
That interagency task force, first announced by President Joe Biden in his State of the Union address on Tuesday evening, has been granted expansive powers to enforce the sanctions and export restrictions aimed at the Kremlin’s billionaire allies.
“We’re joining with European allies to find and seize their yachts, their luxury apartments, their private jets,” Biden said to applause. “We’re coming for your ill-begotten gains.”
U.S. Attorney General Merrick Garland previewed the task force’s launch on Wednesday, vowing that Task Force KleptoCapture would “leave no stone unturned in our efforts to investigate, arrest, and prosecute those whose criminal acts enable the Russian government to continue this unjust war.”
Domestically, at least, the task force is in its nascent stage of development, with a mass hiring blitz across the FBI, the U.S. Marshals Service, the Secret Service, the Internal Revenue Service, and the U.S. Postal Inspection Service. One Justice Department source familiar with the task force said that the mood among its recruits is “fucking thrilled,” but admitted that the enormous operation—part Red Sparrow, part Repo Man—would take a while to put in place.
“Forensic accounting isn’t exactly something you can rush,” the DOJ source said.
So far, at least, cryptocurrency exchanges such as Binance, FTX, and Coinbase have said they will comply with U.S. sanctions efforts. However, most prominent members of the industry are stopping short of implementing full trading bans, according to the Financial Times.
Without a legal requirement, some cryptocurrency exchanges are hesitant to jump into the fray to freeze out Russians altogether, according to Jesse Powell, the chief executive of cryptocurrency exchange Kraken.
Cryptocurrencies are “for peace, not for war,” Powell said. “[I]f we were going to voluntarily freeze financial accounts of residents of countries unjustly attacking and provoking violence around the world, step 1 would be to freeze all US accounts. As a practical matter, that's not really a viable business option for us.”
A freeze on Russians could be “imminent,” though, Powell warned.
Generally, compliance with sanctions is a no-brainer for cryptocurrency exchanges—the Treasury Department last year took steps to make it clear that sanctions compliance obligations also apply to virtual currencies.
But there are some non-compliant organizations that Russians are likely eager to hit up, before it’s too late, Redbord said.
The Ukrainian government has also started raising red flags about the current sanctions packages, fearful that Russians will get away with their funds if cryptocurrency exchanges don’t step up and just block Russians entirely from trading. Ukraine’s Vice Prime Minister Mykhailo Fedorov, who is also the minister in charge of digital transformation, issued a call on Sunday to all cryptocurrency exchanges to bar Russian users from taking advantage of their services.
“I’m asking all major crypto exchanges to block addresses of Russian users,” Fedorov said. “It's crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users.”
It’s not clear if the Biden administration will aim to pressure cryptocurrency exchanges to implement that kind of a freeze. So far the administration has only designated major banks and oligarchs in its sanctions packages, but a fuller country block hasn’t come down the pike just yet.
The Treasury Department did not return a request for comment.
Still, the Biden administration hasn’t shied away from going after cryptocurrency exchanges causing trouble in recent months. The Treasury Department’s Office of Foreign Assets Control made its first designation of a cryptocurrency exchange last year when it slapped sanctions on SUEX—a Russian-owned company—for helping out ransomware gangs with their payments. And although the sanctioning effort was focused on kneecapping Russian ransomware gangs, the move has set the stage for broader enforcement measures against cryptocurrency exchanges should they ignore, either inadvertently or willfully, Biden administration policies.
But going after cryptocurrency exchange isn’t a clearcut issue. There’s concern bubbling up that regular Russian citizens, who are already seeing the value of their money depleted as their president invades Ukraine, will also feel the impact of the war, even when evidence is emerging that many Russians don’t support Putin’s invasion.
And they might feel the burn if cryptocurrency entities step up their crackdown on Russians’ use of cryptocurrency exchanges, too.
“This isn’t the Russian people’s war. It’s becoming clearer by the day that the Russian people oppose it,” Secretary of State Tony Blinken said in a speech Wednesday. “So my message to the people of Russia… is that we know many of you want no part of this war… The economic costs that we’ve been forced to impose on Russia are not aimed at you—they are aimed at compelling your government to stop its actions, to stop its aggression.”
Even so, the scale of Russia’s losses in recent days can’t be solved with just cryptocurrency, warned Redbord, who advised both the deputy secretary and the under secretary for terrorism and financial intelligence at the Treasury Department.
”There’s just not enough liquidity in the entire cryptocurrency market to support what they are losing here in terms of sanctions—we’re talking hundreds of billions or more and the entire market cap of bitcoin… doesn’t come to what they’re going to be losing here,” Redbord told The Daily Beast.
For now, though, authorities are on high alert. European authorities will be tracking whether oligarchs try skirting sanctions by using cryptocurrency, France’s finance minister, Bruno Le Maire, said at a press availability Tuesday.
“We are taking measures, in particular on cryptocurrencies or crypto assets, which should not be used to circumvent the financial sanctions,” Le Maire said. “We will be taking stock on a daily basis with regard to the implementation of these sanctions, their effectiveness and any additional measures which may be needed. When it comes to economic and financial sanctions, we want to remain flexible and mobilized.”
