IMF warns Russia could use crypto ecosystem to avoid sanctions, cites bitcoin mining
(Kitco News) The International Monetary Fund said that Russia could use the crypto universe to get around the Western sanctions that have been imposed on the country since it invaded Ukraine in February.
"The war in Ukraine has brought to the forefront some of the challenges that regulators face in terms of applying sanctions and capital flow management measures," the IMF said. "The crypto ecosystem, however, could allow users to circumvent such requirements through several means."
Russia has been cut off financially from the rest of the world, with Western sanctions trying to pressure Russia to force it to retreat or give up the war altogether.
However, according to the IMF's financial stability report, Russia could use its embargoed energy sector to mine Bitcoin and raise revenue that way.
"Mining for energy-intensive blockchains like Bitcoin can allow countries to monetize energy resources, some of which cannot be exported due to sanctions. The monetization happens directly on blockchains and outside the financial system where the sanctions are implemented," the report described. "Miners can also generate revenues directly from users that pay transaction fees to miners (which in this case might be sanctioned governments)."
The IMF added that the monthly average of all Bitcoin mining revenue last year was around $1.4 billion. Out of this total, Russian miners accounted for about 11%.
Russia could also potentially circumvent sanctions by using exchanges that are "noncompliant with sanctions," by using poor implementation of due diligence procedures by crypto asset providers, and via crypto's anonymous transactions, the IMF noted.
The report also pointed out that crypto asset trading volumes against some emerging market currencies have soared after sanctions were introduced against Russia.
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The IMF's advice is for countries to create or amend regulations around crypto to make sure such possibilities are accounted for.
"Laws and regulations for foreign exchange and capital flow management measures should be reviewed and amended if necessary to cover crypto assets, even if they are not classified as financial assets or foreign currency," the report said. "Regulators in the United States and United Kingdom, among others, have urged firms in their jurisdictions, including the crypto asset sector, to increase vigilance with regard to potential Russian sanction evasion attempts."
The report added that one way to solve this would be to bring crypto under the same capital control requirements as traditional assets.
The idea of how Russia could be avoiding Westen sanctions has been under increasing scrutiny lately, with many pointing to Russia's gold reserves, which were left largely untouched by sanctions.
The Global Initiative against Organized Crime (GI-TOC) warned last week that Russia could use the "well oiled" wheels of the illicit gold market to get around the sanctions.