Japan’s Financial Services Agency and the Japan Virtual and Crypto Assets Exchange Association are assessing ways to block crypto transactions on Japan’s sanctions list, according to the Japan Times.
The news comes after an unnamed official spoke to the local news outlet in the wake of Russia’s invasion of Ukraine, which has sparked widespread and sweeping sanctions against the Russian state and Russian interests.
Japan’s Finance Minister, Shunichi Suzuki, also addressed this issue during an address in Parliament earlier today.
“We are closely watching the situation of settlements such as crypto assets and SPFS in order to secure effectiveness of sanctions against Russia,” Suzuki reportedly said, referring to Russia’s “System for Transfer of Financial Messages,” a state-equivalent to the international SWIFT system.
Japan joins global action
Japan is not alone when it comes to concern that Russia might evade sanctions using crypto.
Earlier this week, France’s Finance Minister, Bruno le Maire, said the European Union is “taking measures” to ensure Russia doesn’t evade sanctions using cryptocurrencies.
Also this week, the U.S. Treasury announced new rules that built on an existing executive order in order to crack down on restrictions against cryptocurrency transactions.
The new 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.”
How can Russia use crypto to evade sanctions?
Russia could use cryptocurrencies to evade sanctions in multiple ways.
One of the most prominent risks is Russia’s use of ransomware—an industry that is already well established in the country.
Recent Chainalysis data found that almost 75% of the world’s total ransomware revenue for 2021 was linked to Russia-affiliated sources.
Crane Hassold, former FBI agent and current Director of Threat Intelligence at Abnormal Security, told Decrypt cryptocurrencies are the “primary factor” driving today’s ransomware landscape. “It essentially allows the overall ransomware payments that we’ve previously seen to scale to numbers that are pretty crazy.”
Russia’s other options include Bitcoin mining, an industry that President Putin has previously said Russia has a “competitive advantage” in, and the use of non-compliant crypto exchanges—an option Russia has turned to before.
“We’ve seen instances before of crypto asset exchange services that were complicit in enabling Russia-based criminals to launder large amounts of money…one was called SUEX,” said David Carlisle, Director of Policy and Regulatory Affairs at blockchain analytics firm Elliptic during a recent online webinar.
In September 2021, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) sanctioned SUEX pursuant to Executive Order 13694, which authorized the imposition of sanctions on individuals and entities responsible for—or complicit in—cyber-related activity against the interests of the United States.