Since the war broke out between Russia and Ukraine, Western nations have backed Ukraine, sidelining Russia. Now, Russia has turned to crypto to help the nations bypass sanctions and conduct cross-border transactions. Will this work, considering Western governments have taken half their foreign reserves?
Russia leans on crypto to bypass sanctions
According to reports, Russia will begin making cross-border crypto payments next week in an effort to circumvent international sanctions. However, there is a concern that this plan will not work.
Note that the legislation passed at the end of July and signed into law by President Vladimir Putin does not lift an existing ban on using crypto as legal tender for regular payments within Russia. The law instead only allows cross-border payments with crypto.
How will that law work? The law itself does not clarify the regulations for such transactions. Instead, it delegated authority to Russia’s central bank to oversee an “experimental” regime.
Blockchain analytics firm Chainalysis’ director of investigations, Valerie Kennedy, says, “The passing of these bills by the Russian government signals a continuation of Russia’s evolving strategy to circumvent Western sanctions.”
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Since Russia’s invasion of Ukraine in February 2022, the country has received 16,500 sanctions from major players, including the United States, the United Kingdom, the European Union, Australia, Canada, and Japan.
Approximately half of Russia’s foreign currency reserves—around 300 billion euros—are frozen. That’s $332 billion locked up, and 70% of the Russian banking system’s assets remain off limits.
To make matters worse, Russian banks have been cut off from SWIFT, the global messaging system used for cross-border transactions. Valerie Kennedy adds, “It has been difficult for Russia to avoid the U.S. dollar and euro via the SWIFT system, which has created increasing risk of secondary sanctions.”
The Russian government has a history of bending the norms, and this bill is no exception. It provides a lot of freedom, allowing them to change the regulations whenever they want. Who will this new law work for? The Russian oligarchs? Or The Russian citizens?
“I’ve been practicing Russian law for over 18 years. I cannot remember the word ‘experimental’ in a draft law,” said Svetlana London, managing partner at CIS London. “It’s quite difficult to decipher, just based on the label, how exactly it will work.”
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