New Sanctions: How US Outmaneuvered Russia’s Crypto Lifeline

Key Takeaways

  • OFAC sanctions target Russian fintech operators, including crypto exchanges Netex24 and Bitpapa.
  • The move aims to prevent Russia from using the financial system to support its war on Ukraine.
  • Sanctioned entities facilitated crypto transactions for OFAC-blacklisted entities, aiding in sanctions evasion.

The U.S. OFAC has imposed sanctions on Russian fintech operators, including cryptocurrency exchanges Netex24 and Bitpapa.

This action is part of the Department of the Treasury’s Office of Foreign Assets Control’s (OFAC) latest rounds of sanctions.

It also involves designating 13 entities and two individuals in its bid to prevent Russia from using the financial system to aid its war on Ukraine. The sanctions block the designees from the U.S. financial system, including dollar transactions.

Facilitating Transactions for OFAC-Sanctioned Entities

According to an official statement from OFAC, the sanctioned entities were included in its lists to facilitate sanctions evasions on behalf of Russian nationals and other OFAC-designated entities. Among these entities is Atomyze, a fintech firm controlled by sanctioned billionaire Vladimir Potanin.

Atomyze helps Russian companies tokenize precious metals, including diamonds. The blockchain firm received Russia’s first regulatory license to issue and exchange crypto assets in 2022 and is reportedly in bed with sanctioned Russian banks Rosbank and Sovcombank.

“As the Kremlin seeks to leverage entities in the financial technology space, Treasury will continue to expose and disrupt the companies that seek to help sanctioned Russian financial institutions reconnect to the global financial system,” Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson explained in the statement.

Two firms that also stood out in the new OFAC lists were cryptocurrency exchanges Netex24 and Bitpapa. OFAC explained that they have a history of facilitating cryptocurrency transactions with OFAC-sanctioned entities. Those include Russian banks, crypto exchanges, and darknet markets. This underscores their role in enabling sanction evasion efforts.

In a recent analysis of their operations, blockchain intelligence firm Chainalysis identified clusters of crypto addresses that detailed the activities of these fintech firms. Citing on-chain data, Chainalysis explained that these exchanges had facilitated significant off-ramping to sanctioned entities. It especially mentions darknet markets and exchanges without Know Your Customer (KYC) policies.

These firms were also revealed to have funded propaganda and Russian pro-militia groups, including Moo Veche. The report further revealed that the value transferred to sanctioned entities has steadily increased since the onset of Russia’s war in Ukraine.

More Sanctions Incoming?

Since Russia invaded Ukraine in 2022, the country has been sanctioned by a host of Western countries, including the US, the UK, and many countries in the EU.

These sanctions include trade bans and the freezing of the country’s reserves. They also seize the assets of Kremlin-associated oligarchs, constituting a significant wave of economic pressure.

In addition, the country was also excluded from the international payment system, SWIFT. This has created a massive draw for many entities and individuals in Russia to leverage cryptocurrencies to evade sanctions and access the financial markets.