As Russia invades Ukraine, concerns about how the country would render the Western sanctions powerless are also on the rise. Experts believe that Russia is preparing to blunt the effects of the sanctions by using digital currencies to bypass control points, as well as make deals with anyone globally willing to work with them.
According to a report in the New York Times, this learning comes from 2014 when the US barred its citizens from doing business with Russian banks, oil and gas developers, and other companies following the invasion of Crimea. The economy was severely hit following the sanctions. It is believed that the sanctions cost Russia $50 billion a year.
Former federal prosecutor Michael Parker told the NYT that Russia had a lot of time to think about the consequences and it would be naive to think that they have not planned ahead.
Following the recent conflict between Russia and Ukraine, along with the US, the European Union, United Kingdom, Germany, Canada, Australia and Japan had also imposed sanctions on Russia.
Sanctions are some of the most potent ways to influence the behaviour of other countries. The government makes a list of businesses and citizens that are to be avoided and anyone caught engaging faces heavy fines. Not only that, banks around the world also play a major role by tracing where the money originates and where it is bound, along with blocking transactions with sanctioned entities. They report their findings with the authorities. The report added that the boom of digital currencies will blindside this system.
Banks are required to follow KYC rules, and verify the identities of its clients. But cryptocurrency exchanges and platforms that follow the same rules are not as not as good as tracking their customers. Experts believe that Russia has multiple cryptocurrency-related tools at its disposal, the report stated.
The Russian government is also creating its own central bank digital currency (popularly known as CBDCs), a digital ruble that can be used to trade with other countries willing to accept it without converting it into dollars. China, Russia’s largest trade partner, already has its own central bank digital currency.
The report added that while cryptocurrency transactions are recorded on blockchain, new tools developed in Russia can mask the origin of such transactions. Businesses will then be able to trade with Russian entities without being traced.
Illegal funds have also flowed into Russia through a dark web marketplace called Hydra, the report said quoting Chainalysis. Hydra is powered by cryptocurrency and already handled more than $1 billion in sales in 2020. The technology behind Hydra masks the source of transactions. While Hydra alone cannot process all the transactions, other money laundering techniques could help Russia.
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