The finance ministry of the affluent Alpine state is set to freeze Russian-owned crypto assets and businesses.
The Swiss federal government wants to freeze crypto assets owned by Russian individuals and enterprises within Swiss borders. These measures penalize Russian citizens and businesses, over and above all European Union-related sanctions.
EU sanctions already adopted in Switzerland
The crypto freeze comes hot on the heels of sanctions imposed on Moscow by the European Union in Brussels following Russia’s incursion against Ukraine. On Wednesday, the EU announced that it would take measures to quash any attempts by Russia to use cryptocurrencies to soften the blow of economic sanctions. “We are taking measures, in particular on crypto assets which should not be used to circumvent the financial sanctions decided upon by the 27 EU countries,” French Finance Minister Bruno Le Maire said to the Financial Times.
The Swiss finance minister Guy Parmelin has confirmed the adoption of four EU sanctions. “As of today, all four of the EU’s sanctions packages have been adopted and implemented in Switzerland,” he said. The last week saw over 200 Russians having their bank accounts and physical assets frozen by Swiss authorities.
How will they freeze crypto assets?
In freezing crypto assets, the Swiss finance ministry wants to protect the integrity of Switzerland’s blockchain industry, considering that Switzerland and neighboring state Liechtenstein have become crypto hubs in recent years and are home to approximately 1,128 blockchain companies.
It remains to be seen how the Swiss authorities will impose the Finance Minister’s measures, considering that some crypto holders choose to hold their assets in a non-custodial crypto wallet. Crypto wallets have a public and private key infrastructure that governs critical aspects of sending and receiving funds. The public and private keys of a non-custodial wallet are inaccessible to anyone except the holder. If the owner moves their crypto through restricted channels, then only do they make themselves visible. “If someone holds their crypto key themselves, then, wherever they are, it’s going to be virtually impossible to identify them,” says a senior Swiss finance official.
When crypto exchanges like Coinbase hold crypto assets, the assets are held in custodial wallets, meaning that Coinbase has access to a customer’s wallet’s public and private keys. It is only in this situation that exchanges can restrict access to user funds. “But if they are using crypto services–funds, exchanges, and so on– these service points we can target,” continued the official.
Even under these circumstances, it would take a legal basis for Swiss companies to enforce the measures to freeze assets, a point highlighted by Kraken CEO Jesse Powell in a recent Twitter thread, since freezing assets indiscriminately would adversely affect business. The exchange would also need to be registered with a regulatory body in the country imposing the freeze, with legal guidelines as to how and when an exchange may be required to restrict access for specific users.
The regulatory body in Switzerland is the Financial Market Supervisory Authority, and all crypto exchanges need to obtain a license from the body to operate. In 2020, the parliament passed the Blockchain Act, which provides legislation that defines how cryptocurrencies can be exchanged, and how exchanges in the country should be run.
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