“MasterCard has done it. Visa has done it. Amex has done it,” Rep. Brad Sherman (D-Calif.), a crypto critic and senior member of the House Financial Services Committee, said in an interview. “In the U.S., these crypto exchanges aren’t doing it. Why have they chosen to be less moral than Visa and MasterCard?”
Warren said on Tuesday that she is writing a bill that would block the exchanges from facilitating crypto transactions with Russian addresses. The move comes as President Joe Biden unveiled a sweeping executive order aimed at clarifying digital asset regulations that includes provisions to solidify anti-money laundering and national security concerns.
Russia was already a prime target for crypto skeptics because of its emergence as a major source of ransomware attacks and the fact that it is home to a number of high-risk digital asset exchanges and service providers that are known to facilitate illegal activity. So far, U.S. Treasury officials say there’s been little evidence of sanctioned Russian individuals or institutions using those services on a meaningful scale to avoid sanctions.
For their part, Ukrainian officials were well on the way to developing a legal framework for digital assets in the weeks prior to the late-February invasion — meaning the country was ahead of where the U.S. is now.
Mainstream adoption of crypto and blockchain-enabled payment systems is pushing the industry — long-touted as a useful tool for quickly transferring assets with some degree of anonymity — to behave more like the businesses it is trying to disrupt. As more banks and payment systems cut off service to ordinary Russians in response to the conflict, digital asset firms are being forced to navigate the same reputational minefields as traditional financial institutions.
“They’re not used to being put under this reputational or regulatory pressure,” said Salman Banaei, a former counsel to the Commodity Futures Trading Commission who now heads public policy for the crypto data firm Chainalysis. “There’s this tension, and maybe it’s part of the maturation of this ecosystem, that some of them are being more sensitive to reputation risk than others.”
Russia’s invasion of Ukraine is forcing many digital asset service providers to reconcile their aspirations for decentralized, peer-to-peer payment systems with the realities of operating in a global economy that relies on government institutions and financial intermediaries.
On one hand, crypto ecosystems have allowed Ukraine’s government to quickly raise more than $60 million in digital assets to support its war effort without having to rely solely on banks or the bond market. On the other, it’s also refocused attention on the degree to which bad actors can use digital assets to obfuscate payments and evade enforcement.
That’s one reason Ukrainian officials are urging crypto exchanges to block all Russian activity on their platforms.
That request largely went unheeded.
Binance — the most widely used crypto trading platform globally — characterized the request as overreach. While the company said it’s complying with sanctions efforts and working with U.S. and international authorities, a wholesale freeze on Russian accounts “would fly in the face of the reason why crypto exists.”
With ruble-denominated crypto trades surging, Coinbase CEO Brian Armstrong made a similar case, saying he had seen evidence of ordinary Russian citizens using crypto “as a lifeline now that their currency has collapsed,” he tweeted on March 4. “Many of them likely oppose what their country is doing, and a ban would hurt them, too.”
Two days later, Coinbase’s Chief Legal Officer Paul Grewal published a blog post saying the company was supportive of the Western-imposed sanctions and that Coinbase had already blocked more than 25,000 addresses “related to Russian individuals or entities we believe to be engaging in illicit activity.”
Information on those addresses was provided to regulators to support sanctions enforcement, Grewal wrote. (In an addendum to the post, Grewal noted that most of those addresses were identified prior to Russia’s invasion of Ukraine and that the company has not seen a spike in sanctions evasions activity).
Those steps wouldn’t go far enough under Warren’s bill.
In addition to blocking U.S. exchanges from taking on any Russian customers, it would codify a rule proposed by former Treasury Secretary Steven Mnuchin that would have required software companies and decentralized finance protocols to collect personal information on their users.
Mnuchin’s proposal had been opposed by Republicans and crypto trade groups. Warren’s bill would likely face similar opposition.
“Longstanding critics will naturally use this crisis narrative to effect the policies that they seek,” said Miller Whitehouse-Levine, policy director of the think tank DeFi Education Fund.
Nevertheless, rampant speculation about sanctions evasion — coupled with a growing push among U.S. companies to sever ties with Russia — has forced some crypto companies to clarify where their services are available. The digital wallet provider MetaMask and the NFT marketplace OpenSea released statements last week clarifying that addresses located in sanctioned countries would be removed from their platforms.
Circle, the second-largest issuer of dollar-denominated stablecoins by volume, announced that it would disable all fiat payments from Russia-based accounts.
In a blog post earlier this week, Coin Center Executive Director Jerry Brito urged U.S. exchanges to continue servicing Russian accounts that aren’t under sanction, arguing that to freeze those accounts now “would cut off one of the last means [ordinary Russians] have to preserve their savings before they melt away in the ruble’s collapse.”
That may frustrate those seeking to back the industry into a corner, but it’s also foundational to crypto’s appeal to libertarians and others wary of government surveillance, he said in an interview.
“We’ve had a model of centralized payments and financial services that’s been around with us for 100 years almost. That’s just the model, and crypto comes around,” Brito said. “It’s the same in a lot of ways, but it’s different. And it’s going to take folks a while to adapt to that change.”