When the United States barred Americans from doing business with Russian banks, oil and gas developers, and other companies in 2014, after the country’s invasion of Crimea, the hit to Russia’s economy was swift and immense.
Economists estimated that sanctions imposed by Western nations cost Russia $50 billion a year.
Since then, the global market for cryptocurrencies and other digital assets has ballooned. That is bad news for enforcers of sanctions and good news for Russia.
On Tuesday, the Biden administration enacted fresh sanctions on Russia over the conflict in Ukraine, aiming to thwart its access to foreign capital.
But Russian entities are preparing to blunt some of the worst effects by making deals with anyone around the world willing to work with them, experts said.
And, they say, those entities can then use digital currencies to bypass the control points that governments rely on — mainly transfers of money by banks — to block deal execution.
U.S. President Joe Biden said Thursday he has authorized “strong sanctions” in response to Russia’s invasion of Ukraine.
These aim to limit its ability to do business in dollars and other major international currencies and include penalties on five Russian banks that represent an estimated $1 trillion in assets.
A broad swath of Russian elites and their family members will also be targeted. That’s all in addition to penalties that were imposed earlier this week.
But those sanctions might carry less weight in a country that is taking steps to legalize cryptocurrencies and where the digital assets are already widely owned.
Typically, nations employ physical workarounds to avoid sanctions, such as Venezuela and North Korea’s use of ship-to-ship transfers of fuel, but digital assets like crypto and decentralized exchanges could become the most effective way to circumvent penalties.
According to a report in the New York Times, this learning comes from 2014 when the US barred its citizens from doing business with Russian banks, oil and gas developers, and other companies following the invasion of Crimea.
The economy was severely hit following the sanctions. It is believed that the sanctions cost Russia $50 billion a year.
Former federal prosecutor Michael Parker told the NYT that Russia had a lot of time to think about the consequences and it would be naive to think that they have not planned ahead.
Following the recent conflict between Russia and Ukraine, along with the US, the European Union, United Kingdom, Germany, Canada, Australia, and Japan had also imposed sanctions on Russia.
Sanctions are some of the most potent ways to influence the behavior of other countries.
The government makes a list of businesses and citizens that are to be avoided and anyone caught engaging faces heavy fines.
Not only that, but banks around the world also play a major role by tracing where the money originates and where it is bound, along with blocking transactions with sanctioned entities.
They report their findings to the authorities. The report added that the boom of digital currencies will blindside this system.
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