Russia’s crypto is a sanctions target

The hunt for Russian crypto

Finding yachts is pretty easy. At least two belonging to sanctioned allies of Vladimir Putin were confiscated last week, and the locations of others are known to authorities.

The hunt for Russian crypto is trickier. But it turns out to be harder to hide than Russian oligarchs might think.

Crypto is on Washington’s radar. The start of the invasion of Ukraine was reportedly followed by a spike in crypto trades involving the Russian ruble.

• The U.S. Treasury’s Office of Foreign Assets Control tightened its rules this month to make clear that sanctions against Russia included digital assets.
• Last week, Senate Democrats led by Elizabeth Warren raised concerns with the Treasury Department that Russian oligarchs could be using crypto for “nefarious purposes.”
• And on Monday, FinCEN specifically warned that sanctioned individuals and entities in Russia and Belarus might be using “convertible virtual currencies” to evade restrictions.

Oligarchs can hide their crypto. Moving it, or spending it, is another matter.

• There’s no such thing as complete anonymity on a blockchain. A crypto account or wallet, which is typically identified as a series of numbers and letters, is visible to a network. Even though no names or any other info is visible, pretty much all transactions can be tracked.
• Tigran Gambaryan, vice president of Global Intelligence and Investigations at Binance, said crypto is “a terrible thing to use to evade sanctions” because “everybody looks at these transactions.”
• FinCEN noted in its Monday alert that “large-scale sanctions evasion using convertible virtual currency by a government such as the Russian Federation is not necessarily practicable.”

Crypto tech keeps evolving. That means a cat-and-mouse game between clever hackers and financial-crime enforcement.

• Mixers and tumblers can obfuscate money trails by pooling transactions. But some crypto exchanges have blocked withdrawals to mixing services.
• Crypto can be moved offline onto a hardware wallet, also known as a cold wallet, that’s not connected to the internet.
• That means an oligarch wouldn’t be able to do anything with the crypto. It’s a good way to hide assets, but not to spend them. Once the wallet’s owner reconnects the wallet to move funds, those connections can be traced.

The blockchain never forgets. Transactions made stealthily now could come back to haunt sanctions evaders years later.

• Unlike fiat money laundered through a series of opaque shell-company transactions, every crypto transfer is recorded permanently on the blockchain. It’s just a question of whether authorities can link those transactions to a real identity.
• That’s not easy, of course. “The oligarchs have been perfecting the skill of hiding assets and obfuscating the course of funds for a very long time,” said Michael Fasanello, chief compliance officer of LVL, a banking and crypto trading company. “Marry this skill set with cutting-edge tech, and you have one heck of a fight on your hands as a counter-[financial crime] professional.”
• But even the slightest slip-up can unravel years of secrecy. A $500 Walmart gift card helped lead investigators to the couple accused of laundering $4.5 billion stolen in the Bitfinex hack.

Ultimately, crypto is safest when it’s hidden. And oligarchs have a tendency to display their wealth — like those yachts being seized around the world.

— Benjamin Pimentel (email | twitter)

A version of this story first appeared on Protocol.com. Read it here.

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On the money

The White House is getting closer to releasing an order on crypto regulation.Bloomberg and AP reported that the executive order, which would call on federal agencies to study the issue, could come this week.

Binance set up a crypto payments provider called Bifinity. The crypto exchange giant’s new payments service is aimed at helping businesses become “crypto-ready,” supporting over 50 cryptocurrencies and major payment methods like Visa and Mastercard.

FTX is expanding to Europe after gaining approval from Cyprus. The Cyprus Securities and Exchange Commission approved a license for FTX Europe, allowing the crypto exchange to offer leading products of the company to European clients via a licensed investment firm, including crypto derivatives products.

Coinbase has blocked over 25,000 Russia-linked addresses. The exchange found links to suspected illicit activity through its own investigations, and shared information about the accounts with the U.S. government to aid sanctions efforts.

In other Coinbase news, the exchange will label some assets as “experimental.” In an effort to boost transparency with customers, the crypto exchange giant is introducing an experimental label for assets considered risky because they were created recently or have low trading volumes.

Overheard

Anthony Scaramucci, founder of SkyBridge Capital, is feeling very optimistic about bitcoin, and believes that it could reach a $100,000 value this year. “Could it get there this year? Yes. Is it likely to get there over two years? I’m very confident of that. But we’ve got some work to do here from a regulatory perspective,” he said in an interview.

Apple co-founder Steve Wozniak is skeptical of cryptocurrencies and NFTs — except for bitcoin. “A token’s flaky on its own. It could even be worth zero,” he said in an interview with Insider, adding that bitcoin is the “only one that’s pure-gold mathematics.”

Ron Wyden, chairman of the Senate Finance Committee, is warning against a heavy crackdown on the crypto industry. “When I think about crypto I think about remittances, or somebody who has a kid 1,000 miles away and wants to get them help in an emergency, rather than going through scores of banks, credit card companies,” he said in an interview.

Deal flow

Immutable raised $200 million, bringing it to a $2.5 billion valuation. The series C round was led by Temasek, with participation from new and existing investors, including ParaFi Capital, Princeville Capital, King River Capital and Prosus Ventures.

CommerzVentures raised $334 million. The VC firm’s newest fund is aimed to support companies in the fintech and insurtech sectors, and brings its total funds under management to $612 million.

Tranglo partnered with Ripple for on-demand liquidity. The payments company will use Ripple’s ODL across its 25 payment corridors to allow remittance providers to process real-time cross-border payments without having to pre-fund. Ripple has a 40% stake in Tranglo.

Payhawk raised another $100 million and achieved unicorn status. The payments company’s series B extension was led by Lightspeed Venture Partners, with participation from new and existing investors, including Sprints Capital and QED Partners.

Wayfair partnered with Capital One for a Wayfair Professional credit program. Wayfair Professional shoppers will be offered a credit card along with a Wayfair Professional Flex Account with extended payment terms.

Key raised $8.5 million. The real estate tech company’s seed funding was supported by Plazacorp, N49P Ventures, Red Jar Capital, TSV Capital, Moderne Ventures and others.

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