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Over the past month, Ukraine has raised over $100 million in crypto asset donations as Russia’s assault on the country continues.
While many tech-savvy Ukrainians were among the early adopters of cryptocurrencies, the space previously had no formal guardrails or guidelines. Amid growing tensions in the region and an outpouring of support and donations, Ukrainian President Volodymyr Zelenskyy signed into law a law that provides a comprehensive legal and regulatory framework for the country’s growing crypto-asset market.
Last September, the Ukrainian parliament proposed – and passed – a law that would legalize crypto-assets. President Zelenskyy initially vetoed this bill due to insufficient money and resources to establish a new regulatory body for cryptoassets. Now, in these unprecedented times, the Ukrainian government has moved to fully embrace virtual currencies.
A few days before President Zelenskiy signed the virtual currency law, Ukraine’s Deputy Prime Minister and Minister of Digital Transformation Mykhailo Fedorov stated: “We are also trying to become a crypto-friendly country. I can even give you some specifics. The Parliament adopted the law on virtual property. I think the president will sign it in a few days. That’s why we strive to be as friendly as possible to virtual assets. And we continue these efforts during the war.”
Fedorov explained that most crypto asset donations help support the Ukrainian military. He added that the country is striving to continue its economic development despite the ongoing conflict.
The Ministry of Digital Transformation recently released a statement on the details and precedent of the law. It explains: “The signing of this law by the President is another important step towards bringing the crypto sector out of the shadows and launching a legal market for virtual assets in Ukraine […]. The Ministry of Finance is actively working on amendments to the Tax and Civil Code of Ukraine to fully launch the virtual property market.”
Ukraine’s new virtual currency regime aims to provide its citizens with a safer and more legitimate crypto-asset market. The law gives Ukraine’s National Securities and Exchange Commission the authority to “regulate, supervise and financially supervise this area.” Among those responsibilities, the Securities and Exchange Commission will set all crypto-asset market policies, license certain virtual asset service providers (VASPs), and support consumer protection. In particular, the law does not classify virtual currencies as legal tender.
Justice Department launches crypto task force amid concerns over Russian sanctions evasion
The Department of Justice (DoJ) recently announced its KleptoCapture task force – aimed at potential Russian sanctions evasion, money laundering and other illicit financial activity. The unit will join forces with the European Union, France, Germany, Italy, Canada and the European Commission.
A DOJ press release quoted Attorney General Merrick B. Garland as saying that “we will leave no stone unturned in our efforts to investigate, apprehend and prosecute those whose criminal acts enable the Russian government to continue this unjust war. Let me be clear: if you break our laws, we will hold you accountable.”
The Department of Justice is particularly interested in cracking down on VASPs that knowingly allow Russians to transact on their platforms – thereby aiding and abetting sanctions evasion. The statement said the KleptoCapture task force “will be fully empowered to use state-of-the-art investigative techniques – including data analysis, cryptocurrency tracking, foreign intelligence sources and information from financial regulators and private sector partners – to identify sanctions evasion and related crime.”
Block analysis tools like those from Elliptic can help provide valuable insights into the financial activities of powerful Russian citizens – aiding the Justice Department’s KleptoCapture task force mission. As geopolitical tensions escalate, blockchain payment transparency will be a necessary resource for strengthening Ukrainian independence.
FBI Launches New Virtual Asset Unit
The DoJ is not the only US regulatory agency deploying resources to keep a closer eye on the crypto-asset market. The Federal Bureau of Investigation (FBI) recently announced a new branch dedicated to preventing illegal activity using virtual currencies. The Virtual Asset Unit (VAU) will be led by the Financial Crimes Section of the FBI’s Criminal Investigation Division.
In a press release released by the FBI, it explained: “Over the past several months, the Criminal Investigation and Cyber Divisions developed VAU as part of the FBI’s strategic plan to address the growing need for virtual asset expertise in the law enforcement and intelligence community. The VAU will enable the FBI to continue to aggressively track the movement of illicit funds, impute criminal actors and disrupt illegal activity.”
The release goes on to quote FBI Executive Assistant Director for Crime, Cyber, Response and Services Brian C. Turner. It states: “The FBI has a long history of using virtual currency to track criminals who profit from ransomware, seek murder-for-hire, and raise funds for terrorist organizations. VAU will integrate experts across the organization to leverage the outstanding work being done every day.” The new unit will bring intelligence and expertise on virtual assets to interagency efforts at the Bureau. In addition, they will undoubtedly focus their latest efforts on Russian sanctions and bad actors.
Senator Warren announces legislation targeting VASP sanctions compliance
Senator Warren recently released the Digital Asset Sanctions Compliance Improvement Act of 2022 along with fellow members of the Banking and Foreign Affairs Committees. Warren is supported by Senators Jack Reed, Jon Tester, Mark Warner and others. The proposed legislation would task regulators with identifying any VASP or crypto broker that facilitated transactions by known entities on the Office of Foreign Assets Control’s list of designated nationals. These VASPs could face sanctions if found to be in violation of this law—except where sanctioning these VASPs is against the national security interests of the United States.
The bill could also require U.S. VASPs not to facilitate any transactions with people in Russia — whether they are sanctioned or not. It also poses a number of potential problems for US competitiveness, as well as the strength of the dollar globally.
The legislation does not specify whether VASPs who facilitate crypto transactions for sanctioned persons must do so knowingly or unknowingly in order to face these severe consequences. Additionally, if intent to take action against VASP needs to be established, to what extent does the burden of proof need to be established?
In addition, proposing blanket sanctions against Russian individuals regardless of whether they are included on OFAC’s SDN list could undermine the ability of the United States to impose any targeted sanctions in the future. This will drive millions of people away from the dollar and towards the digital currencies of foreign authoritarian regimes that do not impose sanctions on Russia. Sanctions are a powerful tool for foreign policy and national security efforts, but blanket bans on a region as large as Russia could undermine the strength of sanctions in the future.
The European Commission announces a blockchain sandbox
The European Commission has announced that it is seeking members to participate in its upcoming pan-European sandbox on distributed ledger technologies (DLT) such as blockchains. Members of the sandbox consortium will be asked to provide their legal and subject matter expertise on a number of issues related to the European Blockchain Services Infrastructure (EBSI).
The EU Blockchain Observatory and Forum explains: “The creation of a European blockchain service infrastructure as a pan-European infrastructure for the provision of cross-border public services opens up the opportunity to explore innovative solutions for use cases that benefit from the trust that blockchain establishes in the immutability and authenticity of data.” If successful, the EBSI sandbox could provide an invaluable framework for the US and other allied nations globally to emulate.
Regulation on the implementation of the law on sanctions
