Crypto not yet useful for skirting sanctions: Moody’s

Despite their potential to preserve anonymity, cryptoassets currently aren’t much of an option for evading financial sanctions, Moody’s Investors Service says.

In a new report, the rating agency said that Bitcoin and other cryptoassets aren’t currently viable as a means to circumvent the sanctions imposed on Russia following its invasion of Ukraine.

“Given the ruble-to-crypto market’s limited size and low liquidity, we believe that, for now, cryptoassets are unlikely to provide a viable and efficient solution for individuals to circumvent sanctions,” it said.

Moody’s noted that Russian residents have recently increased their usage of cryptoassets for small transactions, and that Russian officials have suggested that Bitcoin could be used to pay for its oil and gas exports.

“However, these alternatives face important constraints given the cryptocurrency market’s limited liquidity and small size,” it said.

Additionally, many crypto trading platforms are starting to adopt anti-money laundering (AML) procedures, it said.

“Against this backdrop, regulated digital asset venues generally have to comply with AML/KYC requirements and have customer onboarding practices designed to detect bad actors,” it said, adding that “a centralized digital asset venue with well-established screening and compliant onboarding processes would be able to flag and disable blacklisted accounts.”

To evade these controls, Moody’s said that so-called bad actors are using innovative cryptographic technology to conceal the details of their transactions.

And it noted that illicit activities “that occur off centralized exchanges or on unregulated venues could remain unreported, unflagged and untraced.”

Yet, at this point that kind of activity isn’t large enough to enable countries to avoid sanctions.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.