The cryptocurrency industry faces a mounting backlash amid signs Russian oligarchs are using digital assets such as Bitcoin to avoid sanctions.
Russians are scrambling to buy crypto as Western sanctions imposed on the country send its economy into meltdown and cause the value of the rouble to collapse.
While the measures have crippled its economy, regulators are worried crypto could be used to skirt restrictions on the country’s financial system.
Refuge: Russians are scrambling to buy crypto as Western sanctions imposed on the country send its economy into meltdown and cause the value of the rouble to collapse
However, several crypto exchanges have been reluctant to ban accounts from Russia, leading to calls for stricter monitoring or an outright ban on digital currencies in the UK and other nations.
Baroness Altmann, a Conservative peer and former pensions minister, said the UK should ban crypto exchanges ‘which still allow Russians and indeed drug barons or other illicit operators’ to transfer funds.
‘I can’t understand why we have not banned any operations which are still enabling Russian oligarchs to get around the important aim of preventing them from moving their money around,’ she added.
Angela Eagle, an MP on the Commons Treasury committee, said ‘urgent attention’ was needed to address the use of crypto by Russian entities, saying it was a ‘loophole in the sanctions regime’.
The assessment came as a top London lawyer said buying Bitcoin was ‘the only option’ for some wealthy Russians looking to avoid sanctions.
Nigel Kushner, chief executive of law firm W Legal, told BBC Radio 4’s Today programme that a number of his Russian clients have approached him for advice on how to move their money before their assets are frozen.
He said: ‘There aren’t many safe havens. [Buying crypto] is the only option for certain people because no bank in the world other than a Russian bank will touch you once you’re on the sanctions list.’
The Financial Conduct Authority said it has ‘made it clear’ to crypto companies that it expects them to ‘focus on their sanction controls’. ‘
We have reached out to each crypto firm registered with us to ensure that they are aware of sanctions and their responsibilities,’ a spokesman said. ‘We will be supervising their actions.’
The price of Bitcoin, the world’s largest digital currency, plunged last Thursday as investors sought out safe havens for their cash when news of the invasion broke.
But it rebounded quickly and was last night trading nearly 16 per cent higher than just before war broke out.
Ethereum, the world’s second most valuable crypto, also fell sharply before rallying and is now around 10 per cent above pre-war levels.
The Russian buying frenzy became apparent as trading between Bitcoin and roubles surged by 132 per cent in the days after the invasion, according to data group Kaiko.
Unlike stock markets, many crypto exchanges are unregulated and digital ‘wallets’ allow owners to store their digital assets anonymously and access them anywhere.
Desperation: Russians are scrambling to buy crypto as Western sanctions imposed on the country send its economy into meltdown and cause the value of the rouble to collapse
This week Klaas Knot, chairman of the Financial Stability Board, said crypto assets were ‘a channel for illicit financial flows’ and had been on the regulatory radar ‘for some time’.
He added: ‘Governments can impose and enforce regulations on cryptocurrency holdings that exist on centralised exchanges, but there is a lot outside that and the FSB is increasingly looking at gaps in regulation that can be exploited.’
Former US Secretary of State Hillary Clinton said she was ‘disappointed’ that some crypto exchanges were ‘refusing to end transactions with Russia’. ‘I would hope somebody at the [US] Treasury department is trying to figure out how to rein in the leaky valves in the crypto market,’ she added.
James Butterfill, head of research at digital asset firm CoinShares, said that while Bitcoin was ‘a stateless asset’ that could not be directly controlled, governments could employ other measures to prevent it from being used to skirt sanctions.
One would be ‘blacklisting’ digital wallets thought to be linked to Russia, which would stop them from buying and selling crypto on exchanges.
Blacklisting has been used in the past to prevent criminals from using digital currency to cash in their illicit gains.
Oligarchs would also find it hard to move large sums of crypto undetected, Butterfill said, as the transactions would be flagged up due to their size. However, several major crypto exchanges have so far been reluctant to ban Russian users despite it being pushed for by Ukraine’s vice prime minister Mykhailo Fedorov.
Crypto exchange Coinbase has stopped short of a blanket ban on Russian users but has blocked accounts and transactions from users targeted by sanctions.
Changpeng Zhao, the founder and chief executive of Binance, the world’s biggest crypto exchange, has refused to withdraw from Russia, claiming his platform is ‘here to help the people’.
Zhao (pictured) said Binance was complying with sanctions and freezing the accounts of anyone on a blacklist, but he didn’t know how many accounts had been suspended.
‘I don’t keep track of how many accounts have been frozen but we have a team that specialises in sanctions… I don’t think the CEO needs to know,’ he told the BBC.
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