While the US Congress and media whip up headlines to sell newspapers (or get clicks) by talking up the "possible risks" of Russia bypassing sanctions with crypto, the highly traceable nature of crypto transactions are being used to prevent Russian financial movements into US crypto exchanges in ways which are far cheaper and easier to police and enforce than in SWIFT or the traditional banking sector.
The largest crypto trading platform in the US, Coinbase, has blocked 25,000 wallet addresses that they have determined are linked to Russian individuals or entities. Coinbase proceeded under the belief that these entities were engaged in illicit activity, including avoiding sanctions.
Coinbase was also concerned that crypto-currency could be used by Russian entities to avoid the current economic sanctions resulting from the Kremlin-ordered invasion of Ukraine. Coinbase Chief Legal Officer, Paul Grewal said:
Sanctions play a vital role in promoting national security and deterring unlawful aggression and Coinbase fully supports these efforts by government authorities.
This approach follows directions from the US government to crypto platforms that they prevent Russian oligarchs could not utilise virtual currencies to avoid sanctions. There was a sharp increase in Bitcoin-rouble trades shortly that took place after harsher tranches of economic sanctions were placed on Russia.
There have been calls for crypto exchanges to go further and block all Russian based users, including Russians who might be fleeing to crypto to hedge against the rapid decrease in the value of the Rouble.
In response to these calls, Coinbase Chief Executive Officer Brian Armstrong said:
Some ordinary Russians are using crypto as a lifeline now that their currency has collapsed. Many of them likely oppose what their country is doing, and a ban would hurt them, too. That said, if the US government decides to impose a ban, we will of course follow those laws.
It is worth noting that the isolation of the Russian financial system is not perfect, for example the banks in Russia cut off from SWIFT can still engage in forex transactions, they just have to use telephone, telex, fax and email to do so instead of the SWIFT messaging system. No sanctioning system is ever perfect, but the traceability of crypto leaves a permanent digital trail of the movement of value which makes using crypto for illicit purposes extremely risky for those seeking to break the law.