Ever since sanctions were imposed on Russia, rumors have spread that cryptocurrencies may be used to circumvent them.
And now the head of the European Central Bank has added her concerns over the potential use of crypto by Russian entities.
Christine Lagarde claims that cryptocurrencies “are being used as we speak, as a way to try to circumvent the sanctions that have been decided by many countries around the world against Russia.”
Her argument hinges on the movement of rubles into cryptocurrencies and stablecoins, stating that “at the moment, it is the highest level that we have seen since maybe 2021.”
Last month, volume between the Russian ruble and Tether (USDT) spiked, representing over 2% of the asset’s global trades.
The rising volumes were believed to be in anticipation of the sanctions Western powers would impose on Russia. The volumes seemingly affirmed speculation that sanctioned Russian entities and individuals would turn to cryptocurrencies.
ECB Executive Board member Fabio Panetta echoed Lagarde’s concerns, arguing that the decentralized nature of cryptocurrencies constituted a loophole.
“The risk of misuse of crypto-assets to circumvent the sanctions against Russia is an important reminder that these markets must be required to comply with the strictest standards,” he said.
Concerns were also raised by Elizabeth Warren and the Deputy Prime Minister of Ukraine, who implored cryptocurrency exchanges to impose a blanket ban on the asset class.
“I will quote my successor who recently said ‘you can’t flip a switch overnight and run a G20 economy on cryptocurrency, there just isn’t the liquidity’,” said Michael Mosier, the deputy director, and digital innovation officer of the Financial Crimes Enforcement Network (FinCEN).
So are sanctions being evaded?
Several industry pundits dispute Lagarde’s claims due to the sweeping measure already put in place by regulators. Binance and other exchanges have announced that cards issued by sanctioned banks will not be accepted while others have argued that the crypto market is not large enough to support a large-scale move by Russia.
Jonathan Levin, the co-founder of Chainalysis, said that his firm has “not seen evidence of Russia or Putin systematically using cryptocurrencies to evade sanctions.”
“I’m the person who is behind all the numbers, I know how this happens, and it’s impossible, physically impossible, to transfer large amounts of money from fiat into crypto,” said Michael Chobanian, president of the Blockchain Association of Ukraine.
Sam Bankman-Fried, the CEO of FTX, also expressed his disappointment with media reports that exchanges were not playing their part in enforcing the sanctions against Russia.