US Treasury Set to Crack Down on Crypto Transactions With Russian Entities

The Treasury's Office of Foreign Assets Control is set to issue new rules to restrict financial transactions to enforce existing sanctions against Russia.

By Scott Chipolina

The U.S. Treasury’s Office of Foreign Assets Control is set to issue new rules cracking down on transactions, including those made with cryptocurrency, with prohibited Russian entities.

The rules, dubbed the Russian Harmful Foreign Activities Sanctions Regulations, are currently in draft form and will come into force tomorrow. 

These rules take aim at “deceptive or structured transactions or dealings to circumvent any United States sanctions, including through the use of digital currencies or assets or the use of physical assets.” 

The new regulations reiterate an existing executive order titled “Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation.” The executive order, issued by President Joe Biden in April 2021, was designed to stifle illicit Russian activity. 

On April 15, 2021, President Biden defined the “harmful foreign activities” undertaken by the Russian government to include efforts to undermine elections, engage in malicious cyber-enabled activities, and “foster and use” transnational corruption to influence foreign governments. 

Russia, crypto and sanctions

Russia has faced sweeping sanctions since its invasion of Ukraine on February 24.

These include Germany freezing approval of the Nord Stream 2 gas project (which increases the flow of Russian gas to Europe), and a wave of sanctions against Russia’s banks and state-owned enterprises, including from the international SWIFT payments system.

But this is not the first time that the U.S. Treasury Department has warned against the use of digital assets to circumvent sanctions. 

In a report published last October, the Treasury said digital assets “offer malign actors opportunities to hold and transfer funds outside the collar-based financial system. They also empower our adversaries seeking to build new financial and payment systems intended to diminish the dollar’s role.” 

Earlier this week, Ukraine’s Vice President Mykhailo Fedorov called for all major crypto exchanges to block Russian users. 

“It’s crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users,” Fedorov said.

So far, top crypto exchanges such as Binance, Kraken, and Coinbase have refused to honor the request, arguing that there is no legal grounds to do so. The exchanges, however, maintain that they will continue to comply with all legally mandated sanctions.

Ukraine’s Ministry of Digital Transformation says it plans to make legal demands against these exchanges to require them to block all transactions for Russian residents.