Concerns about crypto's use for sanctions evasion are totally unfounded.

[Nevilledog]

Link to tweet

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Jake Chervinsky
@jchervinsky
1/ Russia can't & won't use crypto to evade sanctions.

Concerns about crypto's use for sanctions evasion are totally unfounded. They fundamentally misunderstand:

- how sanctions work
- how crypto markets work
- how Putin is actually trying to mitigate sanctions

I'll explain 🧵
3:23 PM · Mar 1, 2022

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https://threadreaderapp.com/thread/1498786025438650369.html


1/ Russia can't & won't use crypto to evade sanctions.

Concerns about crypto's use for sanctions evasion are totally unfounded. They fundamentally misunderstand:

- how sanctions work
- how crypto markets work
- how Putin is actually trying to mitigate sanctions

I'll explain 🧵

2/ To begin, I want to express my strong & unequivocal support for the people of Ukraine fighting a totalitarian invader to defend their homes & their basic rights to liberty & self-sovereignty. Glory to Ukraine 🇺🇦

The free world must assist Ukraine & fight back against Putin.

3/ One way for the free world to fight back is by imposing severe economic sanctions on Russia.

Sanctions are a foreign policy tool used to influence the behavior & diminish the capabilities of foreign actors. They seek to deter & punish bad acts through economic consequences.

4/ Here's how US sanctions work:

First, sanctions must be authorized by the President in an executive order or by Congress in legislation.

Second, the Office of Foreign Assets Control (OFAC) designates specific targets for sanctions: individuals, companies, governments, etc.

5/ OFAC adds targets to the Specially Designated Nationals And Blocked Persons (SDN) List, available here: sanctionssearch.ofac.treas.gov

*It is illegal for any US person to transact with any person on the SDN List.*

This is the crux of sanctions: cutting SDNs off from the US economy.

https://sanctionssearch.ofac.treas.gov/

6/ This is crucial to understanding sanctions policy:

The main goal of US sanctions is to deprive SDNs of access to the US economy by making it illegal for US persons to transact with them.

SDNs can't buy US goods or services, sell products to US markets, own US property, etc.

7/ To be most effective, US sanctions laws are extremely broad:

- "US person" means every US individual, company, etc. all over the world
- the law prohibits direct & indirect transactions, plus "facilitation"
- violations are strict liability offenses; zero tolerance for errors

8/ This brings us to Russia.

The US & our allies have imposed severe sanctions on Russia as punishment for invading Ukraine & to deter further aggression.

These sanctions aren't comprehensive. They're targeted at Putin, his oligarchs, the government, & other state entities.

9/ In addition to these sanctions, we've also:

- frozen assets of Russian oligarchs & central bank
- limited Russian banks' access to SWIFT
- banned Russian flights in EU airspace

This list isn't complete & more sanctions are being discussed every day, but you get the idea.

10/ These sanctions have been devastating for Russia so far & will likely be even more effective over time.

But some people are suggesting that crypto could give Russia a way to "evade" or mitigate these sanctions. Is that plausible?

Not at all. I'll give you three reasons why.

11/ FIRST: Russia's access to a global payment network has nothing to do with the goal of primary sanctions, cutting Russia off from the US economy.

It's illegal for US persons to transact with SDNs, period. It doesn't matter if they use dollars, gold, sea shells, or bitcoin.

12/ US persons around the world are cutting ties with Russian SDNs right now, regardless of what payment systems they were using previously.

There's zero reason to think crypto's existence will convince any of them to willfully violate sanctions laws, risking fines & jail time.

13/ What about SWIFT, you ask?

SWIFT is a messaging service that facilitates interbank transactions. Kicking Russian banks off SWIFT will make it harder for them to conduct business.

But it's not the same as "banning Russia from the global financial system," as some have said.

14/ Rather, as with primary sanctions, the goal is to deprive Russia of services offered by the free world.

SWIFT is a service. Russia doesn't get to use it anymore. That's the sanction.

Some Russian banks can still do cross-border transfers, they just can't use SWIFT for that.

15/ Crypto works the same way.

US crypto companies offer a variety of services. Russia doesn't get to use them anymore. That's the sanction, just as with all US goods & services.

Russia's ability to use the underlying technology doesn't let them "evade" the sanction in any way.

16/ Can crypto mitigate sanctions by offering an alternative to SWIFT? Not really.

If Russia wants an alternative, they're far more likely to use China's CIPS than a public network they can't control.

Regardless, there's nobody in the free world to do business with them anyway!

17/ SECOND: crypto markets are too small, costly, & transparent to be useful for the Russian economy.

Crypto markets are thin to start with, & ruble trading pairs are rare. With Russia cut off from the world's crypto industry, they can't source nearly enough liquidity to matter.

18/ Russia also can't hide its tracks with crypto.

Setting aside valid privacy concerns, the transparency of public ledgers + the analytics capabilities of US forensics firms = crypto is useless for sanctions evasion.

The Treasury Department put it best:

Link to tweet

19/ THIRD: the reality is Putin's spent years trying to sanctions-proof Russia & crypto isn't part of his plan.

His strategy included diversifying Russia's reserves into yuan & gold (not crypto), shifting trade to Asia (not onto blockchains), bringing manufacturing onshore, etc.

20/ Putin could have built crypto infrastructure if he wanted. He didn't. There's no reason to think he will (or could) now.

Here's @nytimes, which stoked fears about crypto & sanctions evasion last week, on Putin's real strategy. Zero mentions of crypto:

Putin, Facing Sanction Threats, Has Been Saving for This Day
Since paying the price for annexing Crimea in 2014, Russia has tried to make its economy sanctions-proof, hoarding currency to insulate the country.
https://www.nytimes.com/2022/02/03/world/europe/putin-sanctions-proofing.html

21/ There are other reasons why crypto doesn't create sanctions evasion risk, & more to say about how crypto is being used to support Ukraine & the many innocents caught in the crossfire, but this thread is getting long, so I'll wrap it here. More to come soon.

🇺🇦

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• • •



Jake Chervinsky is Head of Policy for The Blockchain Association

https://theblockchainassociation.org/our-team/

[48656c6c6f20]

1. Well that's gonna stir up "dat bit coins is evil

And it make me afeered" crowd.