Binance freezes Russian assets, but there is a loophole

The biggest exchange in the world announced it would comply with new EU sanctions, freezing all Russian assets exceeding €10,000.

The fifth package of sanctions imposed on Russia by the EU in response to the invasion on Ukraine mentioned crypto assets from the first drafts, but until recently, the details had been unclear.

A council regulation approved on April 8 specifies that under new sanctions, providing crypto “wallet, account or custody services” is prohibited if the total value of assets exceeds €10,000. The measure is directed at all natural and legal persons, entities and bodies residing or established in Russia.

The regulation is not entirely clear on the point of Russian nationals residing outside Russia, but Binance chose not to target those accounts. Those who currently hold less than €10,000 will not be affected either.

A potential loophole?

Curiously, the €10,000 limit refers to any single wallet, account, or custody provider, not a person or entity, so Russians could potentially split their assets to save them from freezing, which means that even if all major crypto companies do comply with the sanctions, Russians could still find a way to continue trading.

However, considering that the purpose of the new sanctions is partly to thwart evasion attempts, the loophole could soon be gone.

Russian war, Russian crypto?

Soon after the Russian invasion on Ukraine started, Mykhailo Fedorov, the Vice Prime Minister and Minister of Digital Transformation of Ukraine, asked all major crypto exchanges to freeze the assets of Russian users.

Back then, Binance was among the majority that refused to do so and only targeted sanctioned individuals, citing crypto values and the fact that punishing regular Russians who have no ties to Vladimir Putin was unfair.

Now, Binance became the first major exchange to halt trading operations for non-sanctioned Russian users.

Based on a proof-of-address verification process, Binance will switch affected accounts to withdrawal-only mode and restrict all new deposits and trading, including on spot, futures and custody wallets, and staked assets.

Affected users with open futures and derivatives will be given 90 days to close their positions.

Binance changes course

Binance’s decision to comply with the new sanctions was likely not an easy one to make. The statement asserts, somewhat grimly, that “all other major exchanges must follow the same rules soon,” suggesting that it is not in Binance's power to oppose the new measures.

However, Binance could also regard the situation as an opportunity to demonstrate their commitment to global compliance as they push to get “licenced everywhere.” In a tweet addressing the decision, CZ reiterated that Binance would “implement any and all sanctions,” but the urgency of world leaders’ efforts to restore peace for “users, employees, and countless other blockchain community members.”