The economic sanctions imposed against Russian oligarchs may have a weak point: cryptocurrencies. The data shows that interest in these assets has skyrocketed in Russia. There has been much speculation that if the country’s great tycoons manage to transform their rubles into bitcoins, they will be able to avoid the international siege to which their accounts are subject. The very nature of cryptocurrencies, which live in their own system and are not controlled by central banks, would allow them to secure their funds to transform them into dollars when everything happens. And without losing purchasing power, since unlike the ruble, rather than sunk in recent days, bitcoin rises. Cryptocurrency movements do not need to be made with names and surnames, as is the case with bank transactions, which will be affected by the disconnection of the SWIFT payment platform and, as of Thursday, by the restrictions imposed by Visa, Master Card and American Express.
So are cryptocurrencies the oligarchs’ escape route from the economic sanctions imposed by the West? Maybe in part. Although, presumably, most of his assets (some leaders accumulate tens of billions of euros) were already safe. “We must bear in mind that these oligarchs may have their tax residence in another State, or have groups of companies that operate in different jurisdictions, so it is possible to avoid, at least partially, the new sanctions,” says Moisés Barrio, lawyer of the Council of State and author of the book Crypto assets. Regulatory issues and challenges (Wolters Kluwer, 2021).
Movement there is. As the financial newspaper advanced The echoes, months ago some of these tycoons started transferring money to cryptocurrencies. What remains to be seen is that they can recover it. Your fate will largely depend on how involved digital currency exchange platforms, also known in jargon as exchanges.
I’m asking all major crypto exchanges to block addresses of Russian users.
It’s crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users.
— Mykhailo Fedorov (@FedorovMykhailo) February 27, 2022
On Monday, February 28, representatives of the White House and the US Treasury met with some of the largest exchanges to ask them to stop operating in Russia to ensure compliance with the sanctions imposed by Washington. On Thursday, one of the major platforms, Binance, had already refused. “We are not against anyone. We differentiate between Russian politicians who start wars and normal people. Many Russian citizens do not agree with the war,” said the company’s founder and CEO, Chanpeng Zhao. On Friday came the refusal of Coinbase, another of the big ones. “We believe that everyone deserves to have access to basic financial services until the law says otherwise,” the platform’s chief executive officer, Brian Armstrong, said on Twitter. “Sometimes the hardest thing about having power is knowing when not to use it,” Kraken founder Jesse Powell argued to justify his denial.
1/6 I understand the rationale for this request but, despite my deep respect for the Ukrainian people, @krakenfx cannot freeze the accounts of our Russian clients without a legal requirement to do so.
Russians should be aware that such a requirement could be imminent. #NYKNYC https://t.co/bMRrJzgF8N
— Jesse Powell (@jespow) February 28, 2022
Putting doors on the field goes against the very spirit of cryptocurrencies, argue many enthusiasts of this movement. Although most exchange houses abide by the instructions of the EU and the US to stop operating in Russia, others are in favor of blocking their services only to certain accounts. For that, you need to know which ones to go to.
The importance of platforms
When someone wants to buy a bitcoin, they need to find someone to sell it to. There are two ways to do it: on your own, by agreeing to an online transaction with an interested party (and running the risk of being scammed), or by using an exchange platform, which may or may not be regulated. The vast majority choose the exchanges regulated, such as Binance, Kraken or Coinbase, precisely in search of guarantees.
These platforms are key for two reasons: they require identification from their clients and they are the only large holders of bitcoin. This cryptocurrency is supported by blockchain, a technology that allows you to see the amount of money that each address or user has. “The addresses with the most bitcoins are those of the exchanges. The oligarch who wants to buy large amounts of bitcoins will necessarily have to go through one of these platforms”, says Javier Pastor, sales director of the Spanish platform Bit2Me.
To register at a regulated exchange house, you must provide your passport and an additional passport photo that matches the one on the document. In case you want to buy cryptocurrencies, you also have to show where the money to be used for the purchase comes from. “The idea is that all exchanges let us be helpful in police investigations, for example in money laundering”, adds Pastor.
Nobody can prevent someone from giving a 50 euro note to another person. The same thing happens with bitcoin transactions. But it is possible to block intermediaries, such as banks in the physical plane or exchanges in the one of the cryptos.
How to get to the oligarchs
The president of the European Central Bank, Christine Lagarde, already said on February 25, the day after the invasion began, that the EU needs legislation that regulates cryptocurrency transactions, among other things to control the capital movements of the leaders. Russians. The law already provides mechanisms to intervene the accounts or wallets of bitcoins or other crypto currencies. “In Spain, the Tax Agency, through the National Fraud Investigation Office (ONIF), has specific plans to detect transactions in cryptocurrencies. Your property must be recorded in the declaration of assets abroad and your earnings are taxed by IRPF and Patrimony”, explains Barrio. “The Spanish courts can block the wallets operated by suppliers based in Spain or with branches in our country and resort to judicial cooperation mechanisms in the remaining cases”, he adds.
Whoever wants to deposit large amounts of dollars from bitcoins in Swiss bank accounts, much to the liking of the Russian oligarchs, or in some tax haven will automatically appear on all radars. For the French economist Thomas Piketty, pursuing these movements is actually simple: “It would be enough for Western countries to finally create an international financial registry that would keep track of who owns what in the different countries,” he wrote this Sunday in EL PAÍS .
You can also selectively intervene before the currency conversion takes place. “There are companies, like the exchanges, which can mark the wallets that have been identified as being related to the Russian government or its collaborators, just as it is done with those that come from hacking or drug trafficking. These transactions should be monitored and blocked, but not all Russian citizens,” says Jorge Soriano, co-founder and CEO of the cryptocurrency exchange Criptan.
Blocking only accounts on a blacklist is the preferred option for many industry professionals. “It’s complicated to do, but it can be done if the intelligence services identify bitcoin addresses of Putin or other key people and then tell the exchanges that they do not accept exchanges from them”, argues Raúl Marcos, CEO of the exchange Carbon.com.
The awakening of the ‘cryptos’
The use of cryptocurrencies, especially bitcoin, has skyrocketed in Russia and Ukraine since the war began. In a few days the volume of conversion from rubles to bitcoins has exceeded 140 million dollars, according to CryptoCompare data collected by Euronews. Russian citizens have seen in this decentralized digital currency the way to retain their purchasing power in the face of the collapse of the ruble, as Venezuelans and Argentines did before them. In Ukraine, which before the invasion was the fourth country in the world in which cryptocurrencies were most used, people have turned to bitcoin to easily transport their money in a flash drive and ensure that your savings do not lose value at a time when uncertainty is total.
The Ukrainian government, for its part, has relied on cryptocurrencies to solicit donations to finance the country’s defense. The official Twitter account of the Government has spent days disseminating the addresses of bitcoin and ether, the two main cryptocurrencies, to which to send money to collaborate in the cause. Until March 1, he received more than 15 million dollars in this way. The Ukrainian NGO Come Back Alive Foundation, for its part, has raised 8.5 million dollars in bitcoins since its foundation in 2014 on the occasion of the invasion of Crimea.
Kiev also plans to issue NFTs (non-fungible digital assets) to support the war against Russia, according to the Financial Times. Last week it was learned that one of the founders of the activist group Pussy Riot auctioned an NFT of the Ukrainian flag for more than six million euros, money that will be used to support those affected by the war.
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