UK forces crypto exchanges to report suspected sanctions violations | Cryptocurrencies

Crypto exchanges must report suspected sanctions violations to British authorities under new rules introduced amid concerns that bitcoin and other crypto assets are being used to evade restrictions imposed in response to Russia’s invasion of Ukraine.

Official guidance was updated on August 30 to explicitly include “cryptoassets” among those that must be frozen if sanctions are imposed on an individual or company. In addition to digital currencies, such as bitcoin, ether and tether, cryptoassets can include other theoretically valuable digital assets such as non-fungible tokens.

The rules, set by the Treasury’s Office of Financial Sanctions Implementation, will mean crypto exchanges commit a criminal offense if they fail to report clients designated for sanctions. Under the rules, crypto exchanges must act immediately if they suspect one of their clients is under sanctions, or if they suspect a violation of sanctions – giving them similar obligations to professionals such as real estate agents, accountants, lawyers and jewelers.

Economic sanctions against individuals and companies linked to Vladimir Putin’s regime have been among Britain’s most prominent responses to the invasion of Ukraine.

Targets for sanctions have included oligarchs and relatives with direct interests in crypto assets. These have included Vladimir Potanin, the “nickel king” who was once Russia’s second-richest man, backing Atomyze, a Swiss blockchain business. Said Gutseriev, son of oligarch Mikhail, owned a stake in a Belarus-based cryptocurrency exchange until August 2021, before he was hit with sanctions on the same day as Potanin in June. The metal billionaire Oleg Deripaska has previously urged Russia’s central bank to allow the use of bitcoin as a means of payment. There is no suggestion that they have used crypto-assets to avoid sanctions.

Binance, the world’s largest cryptocurrency exchange by trading volume, said in April it had blocked the accounts of relatives of Russian politicians, including Polina Kovaleva, the stepdaughter of Foreign Minister Sergei Lavrov, and Elizaveta Peskova, the daughter of Putin’s spokesman, Dmitry. Peskov. The exchange had previously rejected fears that crypto is being used to evade sanctions.

Using cryptocurrencies to avoid sanctions and move money around the world was already illegal in the UK under laws covering all “financial resources”. However, the change underscores the authorities’ concern about the relatively new assets, which can be useful for evading sanctions because users do not rely on regulated entities to conduct transactions.

Anna Bradshaw, a partner at Peters & Peters, a London law firm, said the UK’s move was “in line with the more general extension of financial services and anti-financial crime regulation to the crypto sector”.

“Crypto and virtual assets are not treated differently from any other type of asset for the purpose of freezing assets,” she said. “That said, reliance on crypto or virtual currencies could potentially make it more difficult to detect that a sanctioned party is involved, or that it is related to sanctioned trading or other sanctioned activity – at least in time for action to be taken to prevent it.”

Regulators have taken note. In February, representatives from the White House and the US Treasury Department asked crypto exchanges to stop operating in Russia. In March, UK financial regulators issued a joint statement confirming that crypto-assets fall under the sanctions rules. In April, the EU also banned large crypto transactions with Russia.

A Treasury spokesperson said: “It is important to address the risk of crypto-assets being used to breach or circumvent financial sanctions. These new requirements will cover firms that either register holdings of, or facilitate the transfer of, crypto-assets and are therefore most likely to has relevant information.”