Status: 03/11/2022 11:17 a.m
In order to circumvent western sanctions, oligarchs are also likely to flee to cryptocurrencies such as bitcoin. But here, too, the assets would by no means be safe in the event of appropriate sanctions.
Assets are frozen, entry bans imposed: while the West repeatedly imposes new sanctions against Russian oligarchs associated with President Vladimir Putin, they are trying to get their assets to safety as quickly as possible. According to media reports, expensive real estate in London or luxury yachts are suddenly for sale. Oligarch Roman Abramovich even wanted to sell Chelsea FC as quickly as possible. But the British government forestalled him and froze his assets – with immediate consequences for him and the football club.
Bitcoin and Co. as an escape from sanctions
But even if quick sales should succeed, the question remains as to where the super-rich can save their assets from Western sanctions. Experts and politicians suspect the flight to cryptocurrencies such as Bitcoin, Ether and Co.
“Bitcoin could be a potential safe haven for Russian oligarchs to avoid sanctions as there is no censor on the bitcoin network and cryptocurrency trades,” said Ipek Ozkardeskaya, an analyst at Swissquote Bank. Cryptocurrencies are organized decentrally and cannot be controlled by banking systems.
Sanctions also possible in the crypto market
Indeed, the day after sanctions against the Central Bank of Russia went into effect, the bitcoin price rose 10 percent. Bitcoin trading has skyrocketed, especially in Russia and Ukraine. As early as October, the US Treasury Department warned that cryptocurrencies would pose a growing threat to Western sanctions.
Nevertheless, cryptocurrencies are not necessarily a salvation from the consequences of sanctions. Technically, sanctions are also possible here. “Established platforms require their actors to provide an ID document for identification and a bank account in the name of the actor before establishing a business relationship,” says Uwe Heim, an expert on crypto and Russian organized crime. That is why Mykhailo Fedorov, the Ukrainian Deputy Prime Minister, has repeatedly called on “all major crypto exchanges to block the addresses of Russian users” since the invasion.
Crypto exchanges refuse to ban Russian users
The crypto exchanges make it clear that they will comply with the sanctions. However, so far they refuse to ban Russian users. After all, the basic idea behind cryptocurrencies is to have a currency that is largely immune to state influence and excludes no one. “Unilaterally denying people access to their crypto assets would totally defeat the very spirit of crypto even existing,” a representative from major cryptocurrency exchange Binance told CNBC.
US crypto exchanges Coinbase and Kraken also announced that they would not freeze the accounts of their Russian users without a legal obligation. Nor are they obligated to do so by sanctions. “Russians should be aware, however, that such a measure could be imminent,” said Kraken boss Jesse Powell. This means that sanctions could also affect the crypto market. Crypto exchanges would then have to freeze assets – similar to conventional banks.
Anonymity does not offer secure protection
According to experts, the partially existing anonymity does not offer any real protection either. Because even if you can own cryptocurrencies anonymously, “at the moment when a cryptocurrency is used or exchanged, this happens on a stock exchange and the anonymity is dissolved. Oligarchs would have bitcoin stocks, with which they in turn don’t have much in common sanctioning countries could start, because the sanctions would also apply then,” says Philipp Sandner, head of the Blockchain Center at the Frankfurt School of Finance.
It is a common misconception that cryptocurrencies are still unregulated. Even small exchanges could identify users. That is why cryptocurrencies are now unsuitable for escape and black money. “The larger the amounts, the less anonymous transactions are possible. This is a desired result of the regulation in recent years,” says Sandner.
Bureaucracy as a possible problem
With appropriate sanctions, Russian oligarchs could not easily bring their assets to safety by fleeing to cryptocurrencies. This is exactly where the crypto expert Timo Emden sees a problem: “By the time the legislator waves the new regulations through, the train may have already left. It’s quite possible that wealthy Russians have already moved and concealed their funds on a large scale.”
In order for the oligarchs to be sanctioned, the countries would have to prove that their wealth was linked to Putin. It could be months before most oligarchs are actually sanctioned. Preventing the crypto escape could ultimately fail because of the bureaucracy – and not because of the technical hurdles.