Crypto has long been flagged as a potential money-laundering tool, but now it could have found its ultimate use case.
Sanctions are mounting against Russia and some of its elites by the U.S. and its allies on the back of Russia invading Ukraine and kick-starting Europe’s biggest crisis since World War II. The crypto market crash seems to be exploding the myth that alternative currencies are a goldlike “safe haven,” but they could well be a safe haven for billionaires facing huge financial penalties.
In a Thursday address, President Biden said the U.S. and its allies would limit Russia’s ability to do business “in dollars, euros, pounds, and yen.” Biden also said he would block four more Russian banks that hold more than $1 trillion in assets.
Members of the Russian elite and their family members have been sanctioned, Biden said, opening the door for them to pour into alternative asset classes such as crypto.
“These are people who personally gained from the Kremlin’s policies and they should share in the pain,” Biden said in his address.
And indeed it may be easier to obfuscate any income in cryptocurrencies, thanks to the anonymity they provide. Unlike traditional currencies, cryptocurrencies can be sent from one person to another without going through third-party intermediaries like banks that can potentially freeze the assets.
“Neither dictators nor human rights activists will encounter any censor on the Bitcoin network,” Matthew Sigel, head of digital assets research at investment manager VanEck, told Bloomberg.
Cryptocurrency transactions can also sometimes hide in plain sight. Although all transactions are recorded on a digital ledger called the blockchain, the data is tied to crypto wallet addresses, a string of letters and numbers that isn’t necessarily tied to an individual. Users can open multiple wallets and send cryptocurrency between their many wallets to make their transaction history harder to trace.
This crypto transferring is what Ilya “Dutch” Lichtenstein and Heather “the Crocodile of Wall Street” Morgan were accused of doing in an alleged attempt to launder $4.5 billion in stolen cryptocurrency. According to an affidavit, law enforcement officers seized a file on Lichtenstein’s cloud drive containing a list of 2,000 virtual currency addresses, along with corresponding private keys.
The trouble that Lichtenstein and Morgan ran into, which could become a problem for anyone trying to hide their transactions with crypto, is exchanging their virtual assets to fiat currency like U.S. dollars.
Still, Brett Harrison, president of crypto exchange FTX US, told Bloomberg that because of the technology for tracking and screening wallets from sanctioned countries, changing cryptocurrency to dollars on a centralized exchange is not easy.
“As soon as it moves anywhere, everyone can see it because it’s on a public blockchain, but even if they could move it, no exchange will let them convert this to a currency and the second they do they are caught,” Harrison told Bloomberg.
