A land war in Europe.
A complex financial system that few international regulators understand.
And a proxy fight between the world’s major powers that has rattled international markets and average citizens alike, while the ultra-rich dodge sanctions put in place to end the conflict.
It sounds like something out of a James Bond movie.
But in this case, it is the state of global affairs currently — and how successful each player in the game is depends on their access to time, strategy and most of all, money.
Wondering who made the list of Russians hit with sanctions? TheStreet has you covered.
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Can Bitcoin or Other Crypto Be Used to Hide Assets?
The ability to use cryptocurrency to hide assets from regulators or countries looking to enforce sanctions is a complex process.
Perhaps luckily for Russia, the U.S. has imposed similar sanctions for years on longtime foes North Korea and Iran, who have found multiple ways to turn cryptocurrency into actual money.
But that depends on a lot of factors and infrastructure that the average super rich Russian might not have, Keegan Francis, bitcoin and cryptocurrency specialist and founder of Finder told The Street.
“It depends on how those coins are acquired,” Francis said. “If the coins are acquired through a mining operation wherein the operator knows how to hide their identity [like] IP address, location, etc., then the coins they mine can remain unconnected to an identity.”
But all those bets are off as soon as they put those coins through certain exchanges, some of which are more compliant with international rules than others.
Know Your Customer and Anti Money Laundering (KYC/AML) are sophisticated systems used to verify a users identity and flag transactions that could be illegal.
They have long been touted as a way to stabilize a crypto market that more traditional investors avoid because of the specter of security issues, but making them mainstream for the entire crypto exchange market has been complex.
Still, the ones that are in place now will be a boon to regulators.
“As soon as those coins touch an exchange with KYC/AML compliance obligations, the wallets and addresses attached to those coins are able to have an identity attached to them,” Francis said.
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If Banking Assets Are Frozen, Can People Still Access Crypto?
The short answer to this as of this writing is yes — and no. The world is a big place, and there are many places in it that exist entirely within their own moral codes (see James Bond reference above).
“If a coin exchange were to be sanctioned under a U.S. blocking sanctions program, any assets under U.S. jurisdiction pertaining to that exchange, including coin assets, would be frozen,” Michael Parker, head of the anti-money-laundering and sanctions practice at Washington law firm Ferrari & Associate, told TheStreet.
“If those assets were then moved or dealt with in any way without a license from the U.S. Department of the Treasury’s Office of Foreign Assets Control, it would almost certainly be a violation of applicable U.S. sanctions law,” Parker, a former federal prosecutor, said. “It would be a transaction by a U.S. person (or causing a U.S. person to make such a transaction involving a blocked interest in property.
That means that there are cryptocurrency exchanges that both follow the rules more stringently and are known for their flexibility about certain rules.
Rance Masheck, CEO and founder of iVest+ said that as long as you can open an account in a country that is not sanctioning certain businesses, you can access and trade cryptocurrencies, full stop.
“Sanctions are simply laws that would punish and inflict steep fines on businesses that interact with certain entities,” he said. “It doesn’t mean a business can’t operate or transact somewhere in the world.”
Wondering what exactly an oligarch is? We can help you with that, too.
How Would Someone Hide Their Coin Wealth?
Francis said that anyone who can afford it could hide their wealth by using privacy coins such as Monero, zCash, or Pirate Chain (ARRR).
These are currencies that are “designed to make it extremely difficult, if not impossible to learn the balance of a wallet, or the transactions that the wallet has made.”
Bitcoin itself is a slightly different animal, Francis said, but it, too, has its loopholes.
“With respect to bitcoin, hiding your identity starts with never moving your assets onto a cryptocurrency exchange,” Francis said. “Bitcoin must be kept in self-custody wallets in order to preserve anonymity.”
Bitcoin also has ways to grab more opaque levels of privacy, like using coin-mixers and a lightning network. That is bad news for sanction imposers, because these features were created to be as undetectable as possible.
“Some of these software’s regulators have their eyes on, but they were designed to allow users to evade detection, even when regulators are looking,” he said.
You can read all about how that process works right here.
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What If Crypto Is Being Used As A Safe Haven, Not a Piggybank?
Masheck says that if someone under sanctions wanted to just have access to a large amount of money in a relatively safe place — much like an investor in U.S. bonds or gold — crypto can still provide that assurance.
“They absolutely can be used to hide wealth in the same way that putting cash in a mattress or in a safety deposit box can hide wealth,” Masheck said. “The major difference is that with a hard wallet, the owner can carry large amounts of digital coins on essentially a USB key that fits in their pocket.”
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