EU Sanctions Revive Crypto Concerns

Debate over sanctions evasion re-emerges as EU approves its fifth sanctions package against Putin’s regime.

The latest portion of sanctions includes a “prohibition on providing high-value crypto-asset services to Russia,” a measure that is said to affect crypto wallets. According to EU officials, this will help close “potential loopholes.”

Concerns that Russian oligarchs and institutions could use crypto tools to evade Western sanctions had been present even before the war. The pressure to target crypto transactions grew as Ukrainian officials called on big crypto exchanges to ban Russian users, and US and EU sanctions limited Russia’s access to traditional finance and foreign fiat currencies.

In March, European Central Bank President Christine Lagarde said she believed crypto assets were “certainly” being used to bypass sanctions, suggesting that conversions of rubles into stablecoins and cryptocurrencies were at the “highest level” since “maybe 2021.” Fabio Panetta, a member of the ECB Executive Board, expressed a similar sentiment, suggesting that crypto assets were prone to “misuse” because they don’t comply with “know your customer, anti-money laundering and disclosure requirements.”

But crypto experts remain adamant that the sector is too small and transparent to enable any serious attempt at sanctions evasion. Jonathan Levin, co-founder of the blockchain analytics firm Chainalysis, told the Senate Banking Committee that there was no evidence “Russia or Putin” used crypto to systematically escape sanctions, Bloomberg reported.

A similar opinion was voiced by Stefan Berger, rapporteur for the MiCA crypto regulation EU passed last month, who told Capital that he saw no “systematic circumvention of sanctions” in the crypto sector, noting that transfers executed by Russian investors totalled $62 million, a modest sum for Russian oligarchs.

As Binance CEO Changpeng Zhao told CNN, “crypto is too traceable” for sanctions evasion. When further questioned about Binance’s stance on the war, he reiterated that his company was against the war, but not against the Russian people, defending his decision not to target regular Russian users.

Sanctions enter the energy sector

Apart from targeting crypto wallets, the fifth package bans all transactions and freezes the assets of another four Russian banks, including Bank Otkritie, Novikombank, Sovcombank, and VTB. Beyond financial measures, it includes a ban on Russian coal and further export and import limitations, including a near-total ban on freight road operators and Russian-flagged ships. Russia will also be banned from European public contracts.

Additionally, the new package extends the list of sanctioned individuals to include members of the so-called “governments” and “parliaments” of Donetsk and Luhansk. According to the press release by the European Commission, “1091 individuals and 80 entities have been sanctioned since 2014.”

The European Commission called the new package “broader and sharper,” expressing hope that it would boost the “economic pressure on the Kremlin and cripple its ability to finance its invasion of Ukraine.” Officials have also announced they were already working on further sanctions, including on oil imports.