Crypto’s transparency makes it a poor choice for individuals looking to avoid penalties, according to Paul Grewal, Chief Legal Officer (CLO) of major crypto exchange Coinbase.
Following Russia’s invasion of Ukraine, the United States and its allies placed a slew of sanctions on a variety of Russian financial institutions and entities, attempting to isolate the country from global markets.
However, some have theorized that Russia may circumvent UN sanctions by exploiting cryptoassets, a concept that crypto veterans have categorically denied.
Grewal of Coinbase argues in a blog post today that:
“Digital asset transactions are traceable, permanent, and open to the public,” he stated. “As a result, as compared to the traditional financial system, digital assets can actually improve our ability to detect and deter evasion.”
Crypto transactions are technically stored on blockchains, which are digitally distributed, decentralized, public ledgers.
The public feature of blockchains allows anyone to view key transaction details such as the date and time of transactions, the type of virtual asset transacted, the amount, the wallet addresses involved, and the unique transaction identifier.
This makes blockchain transactions traceable, allowing anyone with the right tools to even trace the transaction history of a wallet back to its inception. There are other ways that allow authorities to track transactions between chains or via intermediaries.
The immutability of blockchains is another important feature that makes them ineffective for dodging sanctions. In a nutshell, blockchain transactions are permanent and cannot be changed or erased.
Grewal concluded, based on these findings, that Russia is unlikely to use cryptocurrency to avoid sanctions. He also mentioned that cryptocurrency is too little for Russia.
“The Russian central bank alone has more than [USD] 630 billion in essentially immobilized reserve assets,” he stated. “That is greater than the total market capitalization of all digital assets except one, and 5–10x the total daily traded volume of all digital assets.”
Nonetheless, Coinbase’s CLO stated that the exchange is committed to complying with sanctions and has already taken a few steps.
First and foremost, the exchange attempts to address the issue at its source by blocking a sanctioned people or institution from accessing Coinbase.
“During onboarding, Coinbase compares account applications to lists of sanctioned individuals or businesses, such as those kept by the United States, United Kingdom, European Union, United Nations, Singapore, Canada, and Japan,” Grewal explained.
Furthermore, the exchange examines its clients on a regular basis to see if a freshly sanctioned individual uses its services. Finally, the exchange makes an effort to anticipate threats and even discover accounts held by sanctioned individuals who do not use Coinbase.
Grewal stated that Coinbase is now blocking over 25,000 addresses associated with Russian persons or businesses suspected of engaged in illegal conduct.
“Once we identified these addresses, we shared them with the authorities to help with sanctions enforcement,” he continued.