CRS Considers Policy Responses on the Use of Cryptocurrency to Evade Russia Sanctions

The Congressional Research Service ("CRS") examined the use of cryptocurrency as a tool for evading Western sanctions against Russia.

In a new report, the CRS concluded that the threat of Russian entities using digital currencies to avoid sanctions is still present, but that the global cryptocurrency market is not liquid enough to support the financial needs of the entire Russian economy. The CRS highlighted the recent cryptocurrency market collapse, noting the high volatility risk associated with cryptocurrency transactions. The CRS also stated that "Russia has a track record of using digital currencies for illicit purposes."

In April 2022, the United States sanctioned Russian-affiliated dark markets, virtual currency exchanges and cryptocurrency mining operations. The CRS noted suspicious activity in cryptocurrency markets that were linked to recent sanctions on Russia, including a spike in trading between the ruble and Tether, a cryptocurrency, after the G-7 announced a new round of Russia sanctions.

The CRS identified policy responses that might mitigate the use of cryptocurrency as a tool for evading sanctions. These include (i) proposed legislation that would target foreign entities processing the transactions for Russian entities, (ii) issuing secondary sanctions to other countries that choose to facilitate transactions for Russian entities and (iii) strengthening reporting requirements by subjecting cryptocurrency wallets and exchanges to know-your-customer anti-money laundering regulations.