US AML watchdog issues alert on potential crypto sanctions evasion from Russia

US authorities continue to be on high alert for Russia to use cryptocurrencies to evade the recent round of sanctions. 

On March 7, the Financial Crime Enforcement Network, or FinCEN, put out an alert, warning financial institutions to look out for convertible virtual currencies, or CVC, in Russia’s efforts to circumvent sanctions. FinCEN’s alert said: 

“It is critical that all financial institutions, including those with visibility into CVC flows, such as CVC exchangers and administrators — generally considered money services businesses under the BSA — identify and quickly report suspicious activity associated with potential sanctions evasion, and conduct appropriate risk-based customer due diligence or, where required, enhanced due diligence.”

FinCEN is an office within the US Treasury. It is actually the Office of Foreign Asset Control that administers the US sanctions regime, but it is FinCEN that maintains general standards for identifying money laundering risks and reporting them.

US agencies and lawmakers have been on guard for use of crypto in Russia’s attempts to get around sanctions. And yet, there has been minimal evidence that Russia is looking to crypto. The alert, indeed, acknowledges this repeatedly.

“Although we have not seen widespread evasion of our sanctions using methods such as cryptocurrency, prompt reporting of suspicious activity contributes to our national security and our efforts to support Ukraine and its people,” said Acting Director of FinCEN Him Das in a statement.

The alert itself elaborated on the familiar difference in scale between crypto markets — which collectively have market caps of around $1.7 trillion as of publication time — and the liquidity necessary for Russia’s sanctions needs:

“While large scale sanctions evasion using CVC by a government such as the Russian Federation is not necessarily practicable, sanctioned persons, illicit actors, and their related networks or facilitators may attempt to use CVC and anonymizing tools to evade U.S. sanctions and protect their assets around the globe, including in the United States.”

Following Russia’s invasion of Ukraine starting on February 24, nations including the US, EU, UK, Japan, South Korea and Switzerland united in sanctioning state actors and oligarchs and freezing their accounts. Ukrainian officials have been applying public pressure to crypto exchanges to freeze all assets in Russian accounts, which is not at this point a requirement of any of these sanctions regimes.

However, as the ruble’s value has slipped and Russia has lost foreign exchange access, trading between Bitcoin and the ruble has gone up in volume.