U.S. Treasury Sanctions Russian Crypto Mining Operation Amid New Token Launch

In a press release today, the U.S. Department of the Treasury is taking action against companies in Russia’s virtual currency mining industry. The Office of Foreign Assets Control (OFAC) designated Bitriver AG, a holding company based in Switzerland for a crypto mining operation with three offices in Russia, as well as ten of its subsidiaries, for “operating or having operated in the technology sector of the Russian Federation economy.” This landmark designation by Treasury marks the first time a crypto mining operation has been sanctioned by the U.S., but the company is also in the middle of a token presale for BitRiver (BTR) token, slated to start secondary market trading this Friday.

According to the sanctions imposed by the U.S. Treasury, BitRiver is, “…operating vast server farms that sell virtual currency mining capacity internationally; these companies help Russia monetize its natural resources.” According to Treasury’s press release, while Russia has an advantage of energy resources and a cold climate for crypto mining, “…mining companies rely on imported computer equipment and fiat payments, which makes them vulnerable to sanctions. The United States is committed to ensuring that no asset, no matter how complex, becomes a mechanism for the Putin regime to offset the impact of sanctions.”

I caught up with Ari Redbord, a former senior Treasury official and a former federal prosecutor with deep experience on sanctions and who currently serves as the Head of Legal and Government Affairs at TRM Labs, a blockchain analysis company. Redbord explained that, “…the last six weeks has shown the U.S. and its allies roll out targeted and escalating sanctions on Russia.” Redbord stated, “The purpose of these sanctions is to punish, change behavior and cut off Russia from the global financial system. This means cutting off Russia from means of production. The sanctions against BitRiver and associated companies are an attempt to cut off Russia from the means of production to mine cryptocurrency for sanctions evasion.”

Redbord further explained what this means in that this is the first crypto mining operation to be designated by OFAC for sanctions violations. “The intent of targeting a Russia-based crypto mining company now is the same as targeting a Russia gas company or financial institution – it is intended to further isolate this regime and to cut Russia off from what it needs to support its economy and evade sanctions,” says Redbord. To caution against what might be concerns in the global crypto mining industry from this action, Redbord states, “This is not about going after crypto miners, it is about going after a Russian-based crypto minor that could be utilized by the Kremlin in the face of a barrage of sanctions.”

I also spoke to William Callahan, a retired U.S. Drug Enforcement Administration Special Agent in Charge and Director of Government and Strategic Affairs, Blockchain Intelligence Group, a developer of blockchain analytics tools as well. According to Callahan, “…today’s designation also takes a shot at any supplier of material, noting that Russian crypto mining operations rely on imported computer equipment and foreign based fiat payment systems. Financial institutions that service businesses in the crypto industry, and not just cryptocurrency exchanges, must deploy enhanced due diligence on its customers who provide material goods or services to Russian entities.”

Callahan also raises the notion that this will not put Bitriver out of business or from mining “…new cryptocurrencies such as bitcoin, but make it illegal for U.S. citizens and U.S. based exchanges to buy those coins.” Callahan warns U.S. citizens that “…Bitriver may try to sell newly minted coins below market prices to increase liquidity, U.S. citizens who operate in a strictly peer-to-peer system need to be aware they could be violating OFAC sanctions if they inadvertently buy coins from Bitriver.” While typically ‘newly-minted’ coins are considered the safest, due to this sanction and the origin of the Bitcoin from Russia means, according to Callahan, that, “Financial institutions, cryptocurrency exchanges, and suppliers of mining equipment must take extra efforts to ensure that they are not transacting with the Russian cryptocurrency ecosystem.”

According to Jason Williams, General Partner at Morgan Creek Digital Assets, who is at @goingparabolic on Twitter, believes that this novel attempt at sanctioning the mining of cryptocurrency may backfire on the U.S. Williams stated, “I actually think they make Putins ability to mine stronger by stranding assets in Russia that are already hooked into renewable energy resources all over the country and hashing. Sanctioning those companies strands the assets and allows for nationalization of these investors equipment.” At a recent cryptocurrency mining conference, I spoke with several suppliers who discussed the rush to move bitcoin miners out of China and into neighboring countries such as Kazakhstan to avoid the equipment being stranded in a sovereign nation where there would be no physical access to the equipment.

BitRiver Token Launch (BTR)

As if this whole new technology and potential attack vector with evading sanctions is not already sophisticated enough, another wrinkle appears to be that BitRiver is in the middle of a new token that started a pre-sale on April 12th, and is set to go live this Friday for trading. As described on the cryptocurrency exchange Bithumb Global’s website, BitRiver LLC was founded by Igor Runets in 2017 and is headquartered in Moscow. The firm is described as providing, “…hosting services and turnkey solutions for large-scale cryptocurrency mining operations to institutional investors around the world. BitRiver employs over 100 full-time staff in three offices across Russia and full-time sales’ representatives in China, Japan, Central Europe, UAE, USA and South Korea.”

Bitriver will be released as a new token for trading paired to the U.S. dollar stablecoin Tether. Options to deposit money for the pre-sale as well as for trading that starts this Friday, are shown on the exchange’s website. Another website from BitRiver describes the new BTR token, a ERC-20 utility token based on the Ethereum blockchain that will allow holders the ability to start mining operations in one of BitRiver’s data centers. The U.S. Treasury’s press office was contacted at the time of publication for comment on the BTR token sale and this article will be updated with any response.