Japan is set to revise its foreign exchange law to prevent Russia from evading economic sanctions via cryptocurrency, per Reuters.
In a press conference today, chief Cabinet Secretary Hirokazu Matsuno said that the government will submit a revised version of the Foreign Exchange and Foreign Trade Act to parliament.
The revised legislation “presumably enables the government to apply the law to crypto-asset exchanges like banks and oblige them to scrutinize whether their clients are Russian sanction targets,” Saisuke Sakai senior economist at Mizuho Research and Technologies said.
This is not the first time Japan has taken aim at crypto to crack down on the risk of Russian sanctions evasion.
Earlier this month, Japan’s Financial Services Agency and the Japan Virtual and Crypto Assets Exchange Association began assessing ways to block crypto transactions on Japan’s sanctions list.
Shunichi Suzuki, Japan’s Finance Minister, said at the time that Japan was “closely watching the situation of settlements such as crypto assets and SPFS in order to secure effectiveness of sanctions against Russia.”
SPFS stands for “System for Transfer of Financial Messages,” a Russian-state equivalent of the international SWIFT system.
Crypto and sanctions evasion
While it is unlikely that Russia could use cryptocurrencies to undermine the entirety of sanctions levied against the state, there are many ways that Russian individuals or entities could use crypto to undermine specific sanctions against their interests.
One such example is ransomware, an industry that lined the pockets of Russia-affiliated criminals more so than any other group last year.
According to Crane Hassold, former FBI agent and current Director of Threat Intelligence at Abnormal Security, cryptocurrencies are the “primary factor” driving today’s ransomware industry.
Other methods include Bitcoin mining and the use of non-compliant exchanges—a strategy that has already been utilized 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…one was called SUEX,” David Carlisle Director of Policy and Regulatory Affairs at Elliptic said earlier this month.
In September 2021, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) sanctioned crypto exchange SUEX as an entity responsible for, or complicit in cyber-related activity against the interests of the United States.