• K

    Keisy Y.

    Russia May Legalise Cryptocurrency to Reduce The Effects of US Sanctions

    To avoid the impact of sanctions, Russian companies may use ransomware.

    Western sanctions against Russia were introduced eight years ago - back then the country received a big blow to the economy. Because of the invasion of Crimea, the US authorities have banned Americans from cooperating with Russian banks and companies for oil and gas. And even though Russian companies have a digital ruble and some crypto-currency tools that help to circumvent sanctions, the country still loses about $50 billion each year due to sanctions.

    On February 24th, in connection with the conflict in Ukraine, the administration of the American president published new sanctions against Russia, which are made to limit access to international capital. For this reason, many Russian organizations are ready to cooperate with anyone abroad. To bypass some blockings, Russian companies may use digital currencies. This mainly concerns money transfers by banks.

    Sanctions are one of the most powerful tools with which the US and European countries can influence their anti-allies. Because the dollar is the world's reserve currency and is used for payments around the world, the United States can use sanctions as a diplomatic tool.

    However, cryptocurrencies can mitigate the effects of sanctions, so the attention to them from government officials is increasing. Russia has several cryptocurrency tools at its disposal, so it can use them without using the dollar.

    For trade with foreign countries, the Russian government is developing a digital ruble - the central bank's digital currency. It can be used without prior conversion to dollars, which will make it possible to compensate for income lost due to sanctions.

    And even though any cryptocurrency transactions are transparent, as they are reflected in the main blockchain, new cryptocurrency tools can help to hide the origin of such transactions. Thus, foreign companies will have an opportunity to trade with Russian organizations without being detected.

    Such precedents already exist, as it became known from the UN report, North Korea financed its nuclear program with cryptocurrencies that were stolen using ransomware. According to the consulting firm Elliptic, Iran compensated for sanctions restrictions on oil sales through bitcoin mining.

    As known by the representatives of the Central Bank of Russia, the “digital ruble” will help Russia become less dependent on the United States and will provide certain levels of resistance to sanctions. Russian companies will be able to transact with any country outside the international banking system using digital currency. Among the allied countries that are also ready to use the new digital currency are Iran and China. Suffice to note that China has already launched a central bank digital currency.

    Yaya Fanoozi, the researcher of Center for a New American Security, said this new system based on digital currency, however, creates new risks: “The decrease in the strength of US sanctions is due to a system in which these nation-states can conduct transactions without going through the global banking system".

    To avoid the impact of sanctions, Russian companies may use ransomware. It works easily: a hacker attacks computer networks and blocks digital information until the victim pays for its disclosure.

    According to Chainalysis nowadays Russia has a big impact on the ransomware industry. In 2021, about 74 percent of global ransomware revenue went to companies that are somehow connected to Russia. In cryptocurrency, this is an amount of more than 400 million dollars. In addition, the report, published on February 14, says that illegal funds also entered Russia through a darknet cryptocurrency trading platform called Hydra. Hydra is based on a technology that hides the source of transactions, allowing users to choose a potential tool for transferring money abroad. In 2020 alone, this site processed over $1 billion in sales.

    Despite the development trends of such programs, the United States is strengthening the monitoring of cryptocurrency transactions. In particular, the Department of Justice intends to create a separate cryptocurrency enforcement team. In addition, the presidential administration is also calling on the cryptocurrency industry to monitor internal processes that will not allow attackers to cause any harm.