As War Rages On In Ukraine, Pressure mounts on Crypto Exchanges

As War Rages On In Ukraine, Pressure mounts on Crypto Exchanges

One by-product of the ongoing conflict in Ukraine is the increasing spotlight being shone on cryptocurrency; the infrastructure, and the balancing act being performed by regulated and centralised exchanges wanting to remain true to the politics-free decentralised purpose of cryptocurrency, but also remain on the right side of the law in their respective jurisdictions.

Russia has been dealt strong sanctions by the West, in retaliation for the ongoing conflict in Ukraine. Western governments have thus far:

•   Frozen the assets of Russia’s central bank, leaving it unable to access its Dollar reserves of around $630 Billion.
•   Forbidden individuals and businesses from transacting with Russia’s central bank, it’s wealth fund and it’s finance ministry.
•   Launched a transatlantic task force to freeze the assets of several Russian individuals and businesses.
•   Removed access to SWIFT for 7 Russian banks, hampering their ability to transact effectively and  efficiently with other banks in order to send and receive customer funds.

These strong sanctions have several media outlets claiming that Russia will turn to cryptocurrency to circumnavigate the restrictions, with calls from many commentators and publications to the largest exchanges to block access to their systems from Russian citizens.

The largest Centralised Exchanges have thus far refrained from blanket bans, FTX President Brett Harrison explaining in a Twitter thread how they are complying with the US Sanctions currently:

“1. We collect identifying information of every user, including name, DOB, phone number, SSN, and photo ID. We cross-check the info against govt databases to ensure veracity (e.g. name matches SSN). If we can’t verify an identity, the user is rejected and prohibited from trading.

1. If a user’s identity is fully verified, we then check the name against all sanctions lists and watchlists, including Treasury’s OFAC list, DOJ’s FBI wanted list, and UN’s consolidated sanctions list. If found, the user is rejected and prohibited from trading.

1. We monitor the user’s fiat transactions. If we detect a deposit is coming from/withdrawal is going to a sanctioned bank or other blacklisted source, we block the user’s activity.

1. We monitor the user’s crypto deposits/withdrawals using on-chain risk analysis and transaction monitoring tools such as @trmlabs. We use the same transaction monitoring tools that government agencies use.

(cont.) These tools have databases of known sanctioned addresses, heuristics that determine geographic locations and machine learning algos that identify suspicious patterns in transfer histories. If we detect suspicious activity, we block the user from moving assets.

1. Along with the above methods, we are in continuous productive dialogue with government, regulators, and law enforcement, and update our procedures based on their instruction.

Crypto exchanges have extremely advanced technology and effective procedures for enforcing AML and sanctions. Recent public assertions that crypto is an effective means of evading sanctions due to lack of industry regulation are without factual support.”

Changpeng Zhao, CEO of the world’s largest exchange by volume Binance, released the following message via a blog post 

“Binance follows international sanction rules strictly … We have very clear Standard Operating Procedures for when we identify risky transactions related to sanctions … So, should BINANCE block crypto to all Russians unilaterally? Let me ask this another way. Should a coffee shop in Paris refuse to serve a Russian customer? Or take their wallet while they’re at it? The answer to that is no. We are not going to unilaterally freeze millions of innocent users’ accounts.”

Simply put, major centralised cryptocurrency exchanges are complying with the recent sanctions and imposing them as required. The growing calls from some corners to ban all users from a nation are going above and beyond the legislation, with the exchanges resisting to do anything outside what is required of them by law. The situation in Eastern Europe is fast flowing; with all eyes on further developments and how they may affect the sector, not only in the immediate short term, but on the landscape for the asset class in years to come.