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In a move that could have significant implications for evading sanctions using cryptocurrencies, local Russian news outlets are reporting that Russia and Iran are considering cooperation to circumvent financial and economic restrictions imposed by the US and other countries.
On January 16, reports emerged from Russia indicating that the country intends to team up with Iran to create a stablecoin for use in cross-border trade settlements. Reports suggest that the stablecoin would be backed by gold and would allow Russia to pay for imports from Iran, in the face of severe banking restrictions both countries face due to sanctions.
The move would not be the first time a new cryptocurrency has been created to enable sanctions avoidance; In 2018, the Venezuelan government launched the petro, a cryptocurrency it created to settle oil imports facing sanctions while reducing reliance on the US dollar.
This news has not yet been confirmed by sources outside of Russia, and it is not clear whether the proposed move has been officially approved by the government of any country. Reports also suggest that Russia would not make such a move until it finalizes a proposed legal and regulatory framework for cryptocurrencies, which is still working its way through the legislative process.
However, if true, the reports would hardly come as a surprise. As previous research by Elliptic revealed, since 2018 Iran has used its vast energy reserves to engage in bitcoin mining to circumvent sanctions, generating as much as $1 billion in revenue in the process. Last year, Iran admitted to using bitcoin to pay for imports – a form of settlement that allows it to transact outside the banking system.
Russia, for its part, has had a mixed history with cryptocurrencies, and at one point was leaning toward banning it. However, following its invasion of Ukraine in February 2022 and the subsequent imposition of expansive sanctions, Moscow has taken a more open stance – laying out a proposed regulatory framework that would allow the use of cryptocurrencies in international trade.
Russian President Vladimir Putin has also publicly stated that the country could establish a competitive advantage in bitcoin mining thanks to its energy reserves, which would allow it to take a page from Iran’s playbook. In April 2022, the US Treasury Department sanctioned BitRiver, a Russian mining company, in an apparent effort to thwart Russia’s efforts to rely on mining to avoid sanctions.
Based on these developments, the prospective project of settling the stablecoins of Russia and Iran is hardly far-fetched. Any such attempt would undoubtedly be met with a response from the US, which in March 2018 issued sanctions banning US citizens from dealing with the petro in response to Venezuela’s attempts to evade sanctions with the cryptocurrency.
Regardless of whether the Russian-Iranian gold-backed stablecoin comes to fruition or not, this news is an important reminder to crypto exchanges and financial institutions of the need to proactively comply with sanctions. At Elliptic, our Elliptic Lens crypto wallet verification solution enables exchanges and financial institutions to identify wallets linked to entities in sanctioned jurisdictions such as Iran and Russia.
By equipping themselves with blockchain analytics solutions, companies can protect themselves from exposure to banned entities and transactions – an essential risk management tool, especially in light of the increasing fines imposed by the US Treasury Department on crypto companies for failing to ensure compliance with sanctions.
Contact us to learn more about how we can help your business comply with cryptocurrency sanctions. In the meantime, read our report on “Cryptocurrency Sanctions Compliance”.
FinCEN identifies Bitzlato as a primary money laundering concern
For the first time, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has identified crypto exchanges as a primary money laundering concern.
On January 18, the US Department of Justice and the Department of the Treasury announced a major international crackdown on the Hong Kong-registered crypto exchange Bitzlato and the arrest of its founder and majority owner Anatoly Legkodimov – a Russian citizen – for money laundering.
In the action order, FinCEN designated Bitzlato as a “primary money laundering concern” under Section 9714 of the Russia Anti-Money Laundering Act to impede its provision of services to known Russia-related criminal activity—specifically, its ties to Russia. darknet market Hydra, as well as ransomware attackers. Covered US financial institutions – which include cryptocurrency exchanges and banks – must stop transacting with Bitzlat, or any account or crypto addresses it uses.
The designation was made under Section 9714 of the Russia Anti-Money Laundering Act, which has a similar effect to FinCEN’s 311 Action under the USA PATRIOT Act – an authority used only for a select number of financial institutions over the past 20 years or more involved. in heavy and large-scale money laundering.
A designation of primary concern for money laundering is one of the most severe actions the US Treasury Department can take against an entity it accuses of engaging in financial crime. FinCEN’s action against Bitzlat may be the first time it has flagged the crypto business as a primary money laundering problem, but it is unlikely to be the last.
Announcing the action, U.S. Deputy Treasury Secretary Wally Adeyemo said “we stand ready to take action against any financial institution – including virtual asset service providers – with weak controls against money laundering, terrorist financing or other illicit financing.”
Immediately following FinCEN’s announcement, the Elliptic team quickly conducted research and updated our monitoring tools so customers could immediately identify exposure to this entity.
Compliance teams at crypto exchanges and financial institutions should take immediate steps to ensure they comply with these requirements outlined in FinCEN’s Bitzlat order.
Since bans on dealing with Bitzlat include not only crypto transfers but also fiat currency transactions, banks and other financial institutions must ensure that they can detect exposure to Bitzlat among their fiat currency transactions and reject any inbound transactions involving the exchange.
Using Elliptic Discovery – our dataset of thousands of cryptocurrency exchanges – a financial institution can obtain additional information and identifiers related to Bitzlato that they can integrate into their transaction monitoring systems to identify potential exposure. This information is essential to ensure that payments involving Bitzlato are properly declined.
Crypto exchanges and financial institutions should be prepared for similar actions in the future and should take steps to ensure they comply with FinCEN’s requirements. Contact us to learn more about how Elliptic’s blockchain analytics solutions can help.
Nexo settles with SEC for $45 million over loan product
On January 19, the US Securities and Exchange Commission (SEC) announced that crypto exchange Nexo agreed to pay a $45 million fine related to a cryptocurrency product it offered.
According to the agency, Nexo offered a product it called its Earned Interest Product (EIP), which the SEC considered a security because it allowed users to earn high returns on funds the exchange used at its discretion.
Under the settlement agreement, Nexo will pay $22.5 million to the SEC for failing to properly register EIP as a security, and another $22.5 million to state regulators. The company also agreed to stop offering EIP to its US customers. As we noted in last week’s regulatory update, Nexo is reportedly also under investigation in Bulgaria for fraud and money laundering issues.
The Nexo settlement is the latest in a string of news highlighting the SEC’s focus on enforcing high-yield cryptocurrencies.
On January 12, he accused US crypto firms Gemini and Genesis of engaging in an unregistered offering of securities through their offering of a similar credit product to Nexo’s. As Elliptic’s research has shown, US regulators have issued more than $3.3 billion in punitive measures against crypto firms to date – a trend that underscores the importance of proactive compliance.
MiCA is facing a delay of two months
Europe’s new crypto rules will face a slight delay. The European Parliament’s final vote on the regulation of the market for cryptoassets (MiCA) has been postponed from February to April – a delay that will push back the implementation of the measures by two months.
MiCA – a comprehensive piece of regulation aimed at promoting sound market practices among EU crypto firms and stablecoin issuers and protecting consumers – has been generally welcomed by the crypto industry as offering a clear regulatory path forward for crypto business in the bloc.
The slight delay means the MiCA provisions are likely to come into force between May and November 2024. The two-month shift in timing, however, should not cause compliance teams to become complacent. It remains critical that you start preparing for MiCA compliance now, so that your business can prepare for the significant changes to come.
Finnish legislator calls for EU DAO framework
Meanwhile from Europe, a senior lawmaker from Finland has called on Europe to curb the rise of the metaverse and the web3 by providing a legal framework for decentralized autonomous organizations (DAOs).
At the World Economic Forum’s recent annual meeting in Davos, Timo Harakka said the EU should provide a harmonized legal framework for DAOs – a move that will position it as a leader in web3 innovation and ensure common access across the bloc.
Regulators around the world are grappling with how to address the risks and legal issues surrounding The DAO, including in the US, where the Commodity Futures Trading Commission (CFTC) has petitioned the courts to rule on The DAO, which the CFTC says violated rules of US futures trading.
These moves are not surprising. In our recent Regulatory Overview report, we predicted that regulators will focus increasing scrutiny on DAOs throughout 2023.
Thailand sets requirements for safekeeping of cryptocurrencies
Thailand has announced regulatory requirements for cryptocurrency custody businesses in the country. On January 17, Thailand’s Securities and Exchange Commission (SEC) issued regulations clarifying the standards cryptocurrency custodians must adhere to in order to secure client funds.
The measures include requirements for custodians to have risk management frameworks in place for managing client funds, ensuring they have policies in place for securely storing private wallet keys, and developing contingency and testing plans to manage the potential compromise of wallets and keys.
SEC regulations are designed to protect consumers from loss, including the risk of losing their funds in cybercrime hacking attacks. To learn more about the country’s regulatory approach to cryptocurrencies, check out our guide to Thailand.
Sanctions Compliance with the law
