US-based cryptocurrency exchange Coinbase has proposed the use of cryptocurrencies to ensure compliance with economic sanctions. The recommendation goes hand in hand with highlighting the ease of money laundering and sanctioning avoidance of legal currencies made possible by traditional financial infrastructures.
Written by Paul Grewal, Coinbase’s Chief Legal Officer, the blog talks about the growing range of global sanctions enacted in the Russia-Ukraine conflict. The cryptocurrency exchange supported the government’s decision to impose sanctions on individuals and territories, emphasizing their importance in “promoting national security and deterring illegal aggression”.
https://t.co/h08YXYgAoM Sanctions play a vital role in promoting national security and deterring illegal aggression, and @coinbase fully supports these efforts by government authorities. They are in the best position to decide when, where and how to apply them.
– Paul Grewal (@iampaulgrewal) March 7, 2022
Grewal points out that despite sanctions imposed by governments over the years, laundering fiat currency through traditional financial institutions remains the most sought-after method of evading sanctions:
“By trading through shell companies, merging into well-known tax havens and exploiting opaque ownership structures, bad guys continue to use fiat currency to obscure the movement of funds.”
On the other hand, Grewal said that digital asset transactions are inherently public, traceable and permanent, an important feature that can be exploited by government authorities to detect and discourage evasion.
2 / Every US company must follow the law: it doesn’t matter if your company manages dollars, cryptocurrencies, gold, real estate or even non-financial assets. Sanctions laws apply to all US citizens and businesses.
– Brian Armstrong – barmstrong.eth (@brian_armstrong) March 4, 2022
Furthermore, eminent cryptocurrency lawyer Jake Chervinsky also pointed out why it is impossible for governments to use cryptocurrencies to evade sanctions. Acknowledging the same, Grewal said actors wishing to counter the sanctions would require “virtually unreachable amounts of digital assets,” adding:
“As a result, trying to obscure large transactions using open and transparent cryptographic technology would be much more difficult than other established methods (for example, using fiat, arte, gold or other assets).”
Some of the proactive measures Coinbase has taken to implement a global sanctions program include blocking the access of entities reported during the registration process, detecting evasion attempts, and anticipating threats using a sophisticated blockchain analytics program.
Additionally, other cryptocurrencies have begun to take steps to further discourage the use of cryptocurrencies based on the sanctions recommended by the US government. For example, Satoshi Labs, a Prague-based crypto wallet provider, has announced to stop shipping crypto wallets to Russia. Satoshi Labs spokesperson Kristýna Mazánkov said that while Bitcoin (BTC) is apolitical, the move to limit the shipment of crypto wallets to Russia was made as “the company’s employees have ties to the conflict that make it personal “.
In addition to helping law enforcement track suspicious activity on a transparent blockchain, cryptocurrencies play a vital role in protecting the privacy of individuals, a principle that exists within the traditional financial system. Grewal concluded:
“We believe we can balance these interests by continuing to support law enforcement efforts while promoting political frameworks that respect individual privacy.”
Related: New York state steps up blockchain monitoring to enforce sanctions
In the first week of March, the New York State Department of Financial Services (DFS) announced the implementation of blockchain-based technology to further strengthen ongoing global sanctions.
– NYDFS (@NYDFS) March 2, 2022
As Cointelegraph reported, DFS plans to accelerate the acquisition of additional blockchain analytics technology to help identify Russian individuals and entities associated with DFS-licensed virtual currency businesses.