Forex in this article
• Russian millionaires want to use Bitcoin and Co. to disguise their wealth
• Tracing and blocking crypto transactions is technically possible
• Praise and criticism for crypto sanctions proposals against Russia
The Federation Tower in Moscow is well known to cybercriminals from all over the world. The Moscow skyscraper is a veritable Eldorado for criminals of all origins, as Russian cryptocurrency companies “turn over” large fortunes there without official identification. Crypto crime is openly condoned, if not encouraged, by Russian authorities. Bitcoin, Ethereum and Co. represent the bridge between the unregulated financial system, which is characterized by many criminal activities, and the internationally regulated dollar financial system represent the desired loophole to protect their wealth. Ipek Ozkardeskaya, an analyst at Swissquote Bank, also raises concerns in the Tagesschau: “Bitcoin could be a possible safe haven for Russian oligarchs to avoid sanctions since there is no censor in the Bitcoin network and in cryptocurrency transactions”.
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Tracing the crypto transactions is technically possible
It is a common misconception that the purchase of any cryptocurrency is always anonymous. Rather, even smaller crypto exchanges only allow identified users. “The larger the amounts, the less anonymous transactions are possible. This is a desired result of regulation in recent years,” says Philipp Sandner, head of the blockchain center at the Frankfurt School of Finance, to the Tagesschau. From a purely technical point of view, it is possible to control larger transactions, but bureaucracy has so far prevented enforcement. Due to the decentralization of cryptocurrencies, state institutions have so far hardly been able to monitor payment transactions, let alone block them – even if the identity of the users is known. For this reason, the high crime rate is also one of the main criticisms against cryptocurrencies.
Cryptocurrencies as a widespread money laundering medium
Drug cartels, especially from Mexico and Colombia, use the decentralization of the crypto world to cover up illegally acquired assets. As the latest report by the International Narcotics Control Board (ICNB) shows, blockchain has been gaining in importance over money laundering media such as casinos or free trade zones for several years. Although there are several companies, especially Chainanalysis, that specialize in tracing blockchain transactions, smaller transactions in particular can be disguised using various services. In the US, transactions under $2,830 are not required to be reported, allowing criminals to break up their deals into many small tranches. According to the Chainanalysis Cyber Crime Report 2022, criminals stole around $14 billion on the blockchain in 2021 and “laundered” $8.6 billion “in”. However, these numbers only relate to traceable cybercrime, so the number of unreported cases is likely to be significantly higher. A large part of this has been carried out in Russia.
Moscow: Eldorado for crypto money laundering
Russia has long been recognized as one of the top crypto money laundering countries. Michal Gronager, head of the data platform Chainanalysis, even describes Russia as the “favourite country of crypto criminals” in Manager Magazin. By buying cryptocurrencies, wealthy Russians can save their millions of dollars in wealth from being frozen. The Russian state could also hold large amounts of crypto coins so far. The Federation Tower (Russian: Federazija), 374 meters high and a prominent skyscraper in Russia’s capital, seems to stand out in relation to the handling of these illegal transactions. According to information from Chainanalysis, dozens of companies are located in the Federation Tower, which – unhindered by the Russian authorities – carry out extensive crypto money laundering.
Sanctions against Russian crypto trades difficult to implement
Some politicians are calling on crypto exchanges to ban all Russian IP addresses from crypto payments. For example, US Senator Elizabeth Warren recently introduced a bill. Warren tweeted that she wanted to prevent “Putin and his cronies” from using the movement and storage of cryptocurrencies to circumvent “historic economic sanctions”. The rule she proposes would require the US Treasury to develop effective technology to track digital coins. In addition, companies should be forced to report suspicious transactions with foreign countries, as Blockchain World reports. Any crypto transactions with Russian players would thus be punished, and the intermediary exchanges would also be punished.
However, the Democrat’s draft law has also drawn criticism, with the crypto-friendly lobby group Coin Center deeming it unconstitutional. In general, many crypto enthusiasts oppose the monitoring or even blocking of crypto financial flows, as they see this torpedoing the characteristic decentralization of Bitcoin and Co. Gronager, on the other hand, suggests banning the transfer of US dollars to Russia altogether, which could nip the cause of crypto crime in the bud: “As long as the dollars can flow, this crypto system works. If no dollars can flow, then Cryptocurrencies don’t help either,” says Gronager.
Unclear information situation
By its very nature, crypto money laundering is unclear, opaque and difficult to trace. This is particularly true during the Ukraine war, since Russian investors, following Russia’s exclusion from the SWIFT banking communications network, are trying to conceal their foreign assets using various strategies and possibly transfer them to Russia. So far there is hardly any reliable information about crypto traffic in Russia. Jonathan Levin, the co-founder of Chainanalysis, emphasized that he has “not seen any evidence that Russia or Putin are systematically using cryptocurrencies to circumvent sanctions.” Therefore, any statement about it has a speculative character.
But one thing is certain: Cryptocurrencies have long since achieved global economic and thus also high geopolitical importance and are particularly popular in criminal circles. The question of whether – and if so how – Bitcoin and Co. should be subjected to better international control will certainly continue to cause very heated debates in the future. The Ukraine conflict acts as a catalyst that could increase political awareness of the disadvantages of decentralized financial transactions.
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