Estonia's Prime Minister, Kaja Kallas, has warned against the use of crypto to avoid sanctions amid Russia's invasion of Ukraine, per Reuters.
"Our focus must be on full isolation of Russia from the free world," Kallas reportedly told the U.S. Secretary of State Anthony Blinken earlier today.
Kallas also reportedly said all Russian and Belarusian banks must be removed from the SWIFT payments system, and cryptocurrencies should be "restricted" to close possible sanction loopholes.
Estonia's Prime Minister is the latest in a growing line of public officials and bodies concerned about Russia using cryptocurrencies to evade sanctions levied against it over the invasion of Ukraine.
Estonia joins global community in concern
Ukraine's Vice Prime Minister, Mykhailo Fedorov, first called on crypto exchanges to ban Russian users on February 27—three days after Russia invaded Ukraine.
"It's crucial to freeze not only the addresses linked to Russian and Belarusian politicians but also to sabotage ordinary users," Fedorov tweeted.
Concerns were echoed by France's Finance Minister, Bruno le Maire, on March 2. Le Maire said the European Union was "taking measures" to prevent Russia from using cryptocurrency to evade sanctions.
Two days later, Japans' financial services regulator and crypto industry body began assessing how Russia might evade sanctions through the use of crypto.
The United States has also been concerned about this risk.
As early as October last year, the United States Treasury published a report that said cryptocurrencies could undermine sanctions, a long-established cornerstone of American foreign policy.
The report said digital assets "offer malign actors opportunities to hold and transfer funds outside the collar-based financial system."
To date, many cryptocurrency exchanges have not issued a blanket ban on Russian users—citing that no legal grounds exist to do so while reiterating they would nonetheless comply with a government-imposed instruction.
Can crypto be used to evade sanctions?
There are several ways cryptocurrencies can be used to evade sanctions.
One such example is ransomware. Recent Chainalysis research shows Russia enjoyed 74% of the profits from the global ransomware industry in 2021.
Crane Hassold, former FBI agent and current Director of Threat Intelligence at Abnormal Security, recently told Decrypt cryptocurrencies were the "primary factor" driving the modern ransomware industry.
"It essentially allows the overall ransomware payments that we've previously seen to scale to numbers that are pretty crazy," he said.
According to a United Nations report, North Korea—which has frequently engaged in cryptocurrency-related ransomware—also part-financed its nuclear and ballistic missile programs through cryptocurrencies.
Bitcoin mining—which President Putin has previously said Russia has a "competitive advantage" in, is another option.
To date, though, it is not clear whether the Russian government has bought any Bitcoin.
Lastly, Russia could still turn to non-compliant exchanges to access cryptocurrencies—a risk that has already materialized in the past.
"We've seen instances before of crypto asset exchange services that were complicit in enabling Russia-based criminals to launder large amounts of money," said David Carlisle, Director of Policy and Regulatory Affairs at blockchain analytics firm Elliptic, during a recent online webinar.
One such example was the SUEX exchange, which the U.S. Treasury's Office of Foreign Assets Control (OFAC) sanctioned in September 2021 under Executive Order 13694, which authorized the imposition of sanctions on those complicit in cyber activity against the interests of the United States.