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In a landmark designation, the US Treasury has sanctioned Bitriver, the largest Russian provider for green cryptocurrency mining, in fear that the crypto farm could help Russia evade US sanctions.
On Wednesday (April 20), the US Treasury’s Office of Foreign Assets Control (OFAC), for the first time, designated companies operating in the virtual currency mining industry that it suspects of helping Russia sell its natural resources.
“[The] Treasury can and will target those who evade, attempt to evade, or aid the evasion of U.S. sanctions against Russia,” said under secretary for terrorism and financial intelligence Brian E. Nelson.
“The United States will work to ensure that the sanctions we have imposed, in close coordination with our international partners, degrade the Kremlin’s ability to project power and fund its invasion.”
Bitriver and its subsidiaries operate vast server farms in Russia and have a comparative advantage in crypto mining due to energy resources and a cold climate.
However, they rely on imported computer equipment and fiat payments, which makes them vulnerable to sanctions, according to the Treasury.
US businesses and individuals are now prohibited from transacting with BitRiver, and the crypto miner will not be able to access services at US crypto-asset exchanges, use the US financial system, or obtain mining hardware or other equipment from the US.
“This demonstrates that OFAC is deeply concerned that Russia could leverage its natural resources to conduct crypto mining to evade sanctions,” David Carlisle, vice president of policy and regulatory affairs at Elliptic told VIXIO.
Crypto analytics firm Chainalysis previously estimated that between 2015 and 2021 bitcoin mining funnelled more than $186m into Iranian services, most of it within the past year.
As Western sanctions tighten on Russia's energy sector, Russia will be increasingly incentivised to monetise its energy resources through mining, Carlisle said, adding that “OFAC is clearly intent on preventing Russia from following Iran's playbook”.
These sanctions are “a pre-emptive strike” to prevent Russia from leveraging its energy resources for crypto-enabled sanctions evasion, which sends a powerful signal that OFAC will use every tool in its arsenal to prevent Russia from evading sanctions through crypto, he stressed.
The US Treasury also designated additional entities and individuals that it believes helped Russia evade Western sanctions.
These include Russian commercial bank Transkapitalbank and a global network of more than 40 individuals and entities led by US-designated Russian oligarch Konstantin Malofeyev, including organisations whose primary mission is to facilitate sanctions evasion for Russian entities.
Nowhere to hide
Following the imposition of financial sanctions on Russia, concerns have been raised that the country may turn to crypto to circumvent the measures, which included the designation of its largest banks and the exclusion of others from the SWIFT international messaging service.
However, experts agree that crypto would be an ineffective primary tool for sanction evasion given the scale of funds that needs to be moved.
On one hand, crypto is unlikely to be able to support mass liquidations of wealth from a price standpoint while, on the other hand, Russians who wish to turn their virtual assets into cash need to go to crypto exchanges, ATMs or traditional financial institutions that must comply with the sanction obligations.
Although Russia, in theory, could use energy-intensive crypto mining to funnel its vast natural resources into cash, this week's designations means even this avenue is being cut off by the US.
