Elliptic has warned there is a "real risk" of Russia using cryptocurrencies to sidestep the sanctions that have been imposed by the West following Vladimir Putin's invasion of Ukraine.
A blockchain intelligence firm has identified hundreds of thousands of crypto addresses with links to sanctioned Russian individuals and businesses.
Elliptic has warned there is a "real risk" of Russia using cryptocurrencies to sidestep the sanctions that have been imposed by the West following Vladimir Putin's invasion of Ukraine.
The company says this could be achieved through state-sponsored cybercrime, the concealment of wealth, and by mining cryptocurrencies too. In a blog post, the firm said:
"Crypto is certainly no silver bullet against sanctions, but Iran and North Korea have shown how it can be exploited to lessen their impact. When countries face severe sanctions, they will look for any and all means to generate funds and evade restrictions."
Elliptic says the crypto addresses it has identified go beyond those who have been included in sanctions lists — and include addresses affiliated with them, potentially through past transactions.
And it confirmed it is now "actively investigating" wallets with ties to Russian officials and oligarchs who have had assets freezed by the West, adding:
"We are collaborating with government agencies and other organizations to ensure that those responsible for enabling the invasion of Ukraine cannot use cryptoassets to hide their wealth."
According to Elliptic, ensuring that cryptocurrencies are impractical for evading sanctions is easier said than done, adding:
"Crypto wallets are fundamentally different from bank accounts. Funds can be moved through thousands of new addresses at the click of a button — meaning that sanctions screening requires more than simply matching customers' wallet addresses with those published on sanctions lists in order to be effective."
Elliptic said the crypto industry must work together to prevent digital assets "from becoming a haven for money laundering and kleptocrats" — and said that work must be performed to ensure that a crypto-based financial system is "safer, fairer and less prone to abuse than the one we have now."
Earlier this month, Coinbase confirmed that it blocks more than 25,000 addresses "related to Russian individuals or entities we believe to be engaging in illicit activity."
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Crypto v Sanctions
A big challenge concerns that there are more than 400 virtual asset service providers — many of them exchanges — where crypto can be purchased with rubles, Elliptic said. To compound the problem, a sizable number of platforms are unregulated and can be used anonymously.
However, other blockchain intelligence firms have argued that cryptocurrencies are unlikely to facilitate sanctions evasion on a mass scale. Chainalysis recently told the CoinMarketRecap podcast that the crypto markets are too small to be used for this purpose… and blockchain technology ensures the flow of funds can be easily traced.
Past research from Chainalysis has suggested that 74% of the ransomware revenue generated in 2021 went to Russia-affiliated addresses — and the company's co-head of policy, Salman Banaei, has expressed fears that ransomware could become a bigger problem in the months ahead. He said:
"Russia's going to be increasingly interested in ways of deterring retaliation from the Western world. And one of the tools that we know they've used is ransomware. It has become a revenue source for them as well as a public policy tool for the Russian government. So we are anticipating, unfortunately, some increase in ransomware attempts."
Indeed, North Korea — also subject to strict economic sanctions — has also been ramping up its attacks on cryptocurrency platforms. Chainalysis data has previously suggested that digital assets worth close to $400 million were stolen in 2021 — and the United Nations has expressed fears that these funds are being used to support its nuclear and ballistic missiles programs.
