Crypto feels more heat from the Ukraine war

Senate Democrats led by Elizabeth Warren urged the Treasury Department to make sure crypto is following the rules when it comes to sanctions against Russia.

The move underscored the growing concern that Russia will use DeFi to defy the penalties for invading Ukraine. It also signaled a heightened focus on how well the crypto industry is complying with a basic tenet of financial regulation: Do crypto companies really know their customers?

Bad actors are known to use crypto. The senators reaffirmed a widely held fear that “digital assets and alternative payment platforms” are used to “hide cross-border transactions for nefarious purposes.”

• North Korea used stolen crypto for its nuclear weapons program, while Iran has turned to bitcoin mining to circumvent sanctions, they said.
• Could Russia follow the modern rogue-nation playbook by using “dark web marketplaces” for moving funds and conducting transactions, they asked, or could it use “crypto wallets and mixing services that allow sanctioned entities to transfer and hide their wealth”?
• Ransomware attacks are also a concern: “Nearly three-quarters of all global ransomware revenue last year, or more than $400 million in cryptocurrency payments, is estimated to have gone to Russia-affiliated entities.”

Too much DeFi is a problem. “Unlike traditional financial institutions, or even the larger, centralized cryptocurrency exchanges,” many crypto companies conduct only “bare bones” checks to know their customers, Warren and her fellow Democrats said.

• Major crypto companies including Circle and Coinbase have recently taken big steps to show they want to follow rules. They launched new protocols for a blockchain-based KYC system and a crypto network to help members comply with FinCEN’s Travel Rule requirement.
• But the Office of Foreign Assets Control, the lead sanctions agency, needs to do more, the senators said, calling on OFAC to come up with “sufficiently strong and effective procedures for enforcement in the cryptocurrency industry,” particularly on KYC.
• It’s a sign of things to come for crypto as it reels from a major geopolitical conflict, said Michele Alt, partner and co-founder at Klaros Group. “The Russian invasion of Ukraine provides a sobering — indeed, downright alarming — nefarious crypto use case,” she told Protocol.

The war is changing the conversation. And crypto may find itself on the defensive when it comes to regulations. “The potential of crypto to shield a murderous dictator from the full impacts of international opprobrium will be used to rebut any arguments against stricter crypto regulation,” Alt said. We knew this in theory, but Warren and her colleagues are putting it into practice.

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On the money

Sberbank, Russia’s biggest bank, is quitting the European market. The bank said it was no longer able to supply liquidity to European subsidiaries, but could pay back depositors. It faced major cash outflows due to Western sanctions, as well as threats to its staff and property. A Bloomberg photographer documented a Sberbank ATM in the Czech Republic defaced with graffiti.

On Protocol: The SEC is probing certain kinds of NFTs to determine if they amount to illegal offerings of securities. Fractional NFTs face particular scrutiny.

Ukraine will conduct an airdrop to its crypto donors. It will become the first nation to provide free tokens to an online community as a way to encourage more donations. Ukraine said it had received $33 million in crypto donations so far.

University of Cambridge is launching a crypto research project with the International Monetary Fund and the Bank for International Settlements. The university’s Centre for Alternative Finance will collaborate with the IMF and the BIS to provide insight into the digital assets industry. Participants include Visa, Mastercard and a number of banks.

The Digital Currency Group authorized a $250 million buyback for its Grayscale trusts. The share repurchase program includes Grayscale Litecoin Trust, Grayscale Horizen Trust, Grayscale Zcash Trust and other Grayscale products. DCG has said it hopes to convert the closed-end funds to ETFs.

The U.S. launched a “KleptoCapture” task force to put financial pressure on Russian oligarchs. It described the task force as an “interagency law enforcement group [...] dedicated to enforcing sanctions, export restrictions and economic countermeasures designed to freeze Russia out of global markets.”

Overheard

René Jones, CEO of M&T Bank Corp, thinks that digital banks should be just as regulated as traditional banks. “One is left to wonder how the national interests of preventing terrorism, money laundering, and redlining, while providing safety of deposits and access to affordable housing, can be effectively served in view of this ever-widening regulatory gap,” he wrote in a letter to shareholders.

Ashneer Grover has resigned from BharatPe’s board after the board opened an investigation into charges of financial irregularities leveled against him and his wife. “The fundamental fact is that all of you as investors are so far removed from reality that you’ve forgotten what real businesses look like and have no appreciation for what it took to run this enterprise day in and day out,” the founder wrote in an email to the board.

Ukraine has gone full shiba in embracing donations in crypto. “@dogecoin exceeded Russian ruble in value. We start to accept donations in meme coin. Now even meme can support our army and save lives from Russian invaders,” Ukrainian Vice Prime Minister Mykhailo Fedorov tweeted.

Moves and hires

SaveAway added Shamir Karkal and Premal Shah to its advisory board. Both Karkal and Shah will advise the social ecommerce service, and Karkal is also investing in it.

Katherine Wu left Coinbase Ventures to join crypto VC firm Archetype. Formerly a senior deal lead at Coinbase Ventures, Wu will join the early-stage VC firm Archetype as a venture partner. “Sometimes you take that leap of faith and it doesn’t land quite right,” she tweeted.

Remitly appointed Ankur Sinha as its chief technology officer. Sinha previously held leadership roles at Google and Microsoft, and will lead Remitly’s technology strategy and teams.

Melio appointed Tomer Barel as its chief operating officer. Barel formerly held senior executive roles at Meta and PayPal, and will lead Melio’s strategy execution and scale operations.

Morgan McKenney was appointed CEO of the Provenance Blockchain Foundation. McKenney was previously the chief operating officer at Citigroup’s global banking division.

Forage appointed Ofek Lavian as its chief operating officer. Lavian was most recently the head of Product for Payments at Instacart, and was product manager for Payments at Uber prior to that.

S&P Global expanded its team following its $140 billion merger with IHS Markit. Executives who took on new roles leading the six operating divisions include Adam Kansler, who will lead the Market Intelligence division, and Martina Cheung, who will lead the Ratings division.

A MESSAGE FROM NOVOPAYMENT

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