# Sanctions ### Crypto is difficult to use for sanctions evasion **Main points** - Sanctions prohibit US persons from transacting with sanctioned entities; this includes transacting in Bitcoin - Western law enforcement has good visibility into on/off ramps; the gov't is likely confident that Russia will not meaningfully be able to evade sanctions using crypto. Source: [Neeraj Tweet](https://twitter.com/NeerajKA/status/1497565423314821128?t=BjRqgnrmqm74gS2bwhCujQ&s=19) **Actual Tweets** - [Tweet](https://twitter.com/i/status/1498786025438650369) by [@jchervinsky](https://twitter.com/jchervinsky) on [[March 1st, 2022]]: - 1/ Russia can't & won't use crypto to evade sanctions. - Concerns about crypto's use for sanctions evasion are totally unfounded. They fundamentally misunderstand: - how sanctions work - how crypto markets work - how Putin is actually trying to mitigate sanctions - I'll explain 🧵 - 2/ To begin, I want to express my strong & unequivocal support for the people of Ukraine fighting a totalitarian invader to defend their homes & their basic rights to liberty & self-sovereignty. Glory to Ukraine 🇺🇦 - The free world must assist Ukraine & fight back against Putin. - 3/ One way for the free world to fight back is by imposing severe economic sanctions on Russia. - Sanctions are a foreign policy tool used to influence the behavior & diminish the capabilities of foreign actors. They seek to deter & punish bad acts through economic consequences. - 4/ Here's how US sanctions work: - First, sanctions must be authorized by the President in an executive order or by Congress in legislation. - Second, the Office of Foreign Assets Control (OFAC) designates specific targets for sanctions: individuals, companies, governments, etc. - 5/ OFAC adds targets to the Specially Designated Nationals And Blocked Persons (SDN) List, available here: [Sanctions List Search](https://sanctionssearch.ofac.treas.gov/) - *It is illegal for any US person to transact with any person on the SDN List.* - This is the crux of sanctions: cutting SDNs off from the US economy. - 6/ This is crucial to understanding sanctions policy: - The main goal of US sanctions is to deprive SDNs of access to the US economy by making it illegal for US persons to transact with them. - SDNs can't buy US goods or services, sell products to US markets, own US property, etc. - 7/ To be most effective, US sanctions laws are extremely broad: - "US person" means every US individual, company, etc. all over the world - the law prohibits direct & indirect transactions, plus "facilitation" - violations are strict liability offenses; zero tolerance for errors - 8/ This brings us to Russia. - The US & our allies have imposed severe sanctions on Russia as punishment for invading Ukraine & to deter further aggression. - These sanctions aren't comprehensive. They're targeted at Putin, his oligarchs, the government, & other state entities. - 9/ In addition to these sanctions, we've also: - frozen assets of Russian oligarchs & central bank - limited Russian banks' access to SWIFT - banned Russian flights in EU airspace - This list isn't complete & more sanctions are being discussed every day, but you get the idea. - 10/ These sanctions have been devastating for Russia so far & will likely be even more effective over time. - But some people are suggesting that crypto could give Russia a way to "evade" or mitigate these sanctions. Is that plausible? - Not at all. I'll give you three reasons why. - 11/ FIRST: Russia's access to a global payment network has nothing to do with the goal of primary sanctions, cutting Russia off from the US economy. - It's illegal for US persons to transact with SDNs, period. It doesn't matter if they use dollars, gold, sea shells, or bitcoin. - 12/ US persons around the world are cutting ties with Russian SDNs right now, regardless of what payment systems they were using previously. - There's zero reason to think crypto's existence will convince any of them to willfully violate sanctions laws, risking fines & jail time. - 13/ What about SWIFT, you ask? - SWIFT is a messaging service that facilitates interbank transactions. Kicking Russian banks off SWIFT will make it harder for them to conduct business. - But it's not the same as "banning Russia from the global financial system," as some have said. - 14/ Rather, as with primary sanctions, the goal is to deprive Russia of services offered by the free world. - SWIFT is a service. Russia doesn't get to use it anymore. That's the sanction. - Some Russian banks can still do cross-border transfers, they just can't use SWIFT for that. - 15/ Crypto works the same way. - US crypto companies offer a variety of services. Russia doesn't get to use them anymore. That's the sanction, just as with all US goods & services. - Russia's ability to use the underlying technology doesn't let them "evade" the sanction in any way. - 16/ Can crypto mitigate sanctions by offering an alternative to SWIFT? Not really. - If Russia wants an alternative, they're far more likely to use China's CIPS than a public network they can't control. - Regardless, there's nobody in the free world to do business with them anyway! - 17/ SECOND: crypto markets are too small, costly, & transparent to be useful for the Russian economy. - Crypto markets are thin to start with, & ruble trading pairs are rare. With Russia cut off from the world's crypto industry, they can't source nearly enough liquidity to matter. - 18/ Russia also can't hide its tracks with crypto. - Setting aside valid privacy concerns, the transparency of public ledgers + the analytics capabilities of US forensics firms = crypto is useless for sanctions evasion. - The Treasury Department put it best: - [twitter.com/NeerajKA/statu…](https://twitter.com/NeerajKA/status/1497565423314821128?s=20&t=9C5hqH9jCyopj5WdjTHblA) - 19/ THIRD: the reality is Putin's spent years trying to sanctions-proof Russia & crypto isn't part of his plan. - His strategy included diversifying Russia's reserves into yuan & gold (not crypto), shifting trade to Asia (not onto blockchains), bringing manufacturing onshore, etc. - 20/ Putin could have built crypto infrastructure if he wanted. He didn't. There's no reason to think he will (or could) now. - Here's @NYTimes, which stoked fears about crypto & sanctions evasion last week, on Putin's real strategy. Zero mentions of crypto: - [Putin, Facing Sanction Threats, Has Been Saving for This Day](https://www.nytimes.com/2022/02/03/world/europe/putin-sanctions-proofing.html) - 21/ There are other reasons why crypto doesn't create sanctions evasion risk, & more to say about how crypto is being used to support Ukraine & the many innocents caught in the crossfire, but this thread is getting long, so I'll wrap it here. More to come soon. - 🇺🇦 - [end]