Cryptocurrency: A lifeline for Russian oligarchs?

The use of bitcoin in Russia has spiked since the beginning of the offensive against Ukraine. While ordinary citizens see it as a way to maintain their buying power, the elites may be using it to skirt sanctions

The headquarters of BitRiver, the largest cryptocurrency mining facility in Russia.
The headquarters of BitRiver, the largest cryptocurrency mining facility in Russia.Bloomberg

The ongoing economic sanctions against Russian oligarchs may have a weak point: cryptocurrency. Data shows that Russian interest in the digital currency has spiked since Russia invaded Ukraine. There are growing concerns that the country’s magnates are converting rubles to bitcoin in order to skirt the global restrictions on their accounts. The nature of cryptocurrency – which exists in a closed system and is not regulated by central banks – could allow Russian users to hold onto their capital and eventually convert it to dollars.

What’s more, while the ruble has fallen in recent days, bitcoin is on the rise, meaning the oligarchs would not lose any purchasing power. Cryptocurrency movements are not tied to a user’s identity, unlike bank transactions, which have been affected by the decision to ban Russia from the SWIFT payment platform and the fact that Visa, Mastercard and American Express have suspended all operations in the country.

So are Russian oligarchs using cryptocurrencies to avoid the West’s economic sanctions? That could be the case. But most of their capital was probably already safe before the sanctions were introduced. “We have to take into account that these oligarchs may have their fiscal residence in another country, or have groups of companies that operate in different jurisdictions, making it possible to at least partially avoid the new sanctions,” said Moisés Barrio, a lawyer for the Spanish Council of State and the author of the book Criptoactivos. Retos y desafíos normativos (or, Cryptocurrencies. Challenges and regulatory obstacles).

But there has been movement. As the French financial daily Les Echos noted, some of these magnates began buying up cryptocurrency months ago. But it’s yet to be seen whether they will be able to recover their money. This will largely depend on how much digital currency platforms, also known as exchanges, decide to get involved in the conflict.

On Monday, February 28, representatives from the White House and the United States Treasury met with some of the major exchanges to ask them to stop operating in Russia in order to comply with Washington’s sanctions. On Thursday, Binance, one of the largest trading platforms, refused. “We differentiate between the Russian politicians who start wars and the normal people, many normal Russians do not agree with war,” Chanpeng Zhao, the founder of Binance, told BBC Radio 4 on Thursday.

The following, Coinbase, another major exchange, also refused to comply. “We believe everyone deserves access to basic financial services unless the law says otherwise,” said Brian Armstrong, the company founder, in a message on Twitter. Jesse Powell, the founder of the trading platform Kraken, also justified his refusal on Twitter, arguing: “Sometimes the hardest thing about having power is knowing when not to use it.”

Many cryptocurrency enthusiasts argue that gatekeeping the sector goes against the technology’s spirit. Though most exchanges are following the European Union and United States’ requests to stop operating in Russia, some have chosen only to block access to certain accounts. To do this though, they need to know who to go after.

How the platforms work

When someone wants to buy bitcoin, they need to find a seller. There are two ways to do this: they can carry out the transaction over the internet – and run the risk of getting scammed – or they can use an exchange, which may or may not be regulated. Most users opt for regulated exchanges, such as Binance, Kraken and Coinbase, in order to protect their transactions.

These platforms are key for two reasons: firstly, they require their clients to identify themselves, and secondly, they are the only large bitcoin forks. Bitcoin is built on blockchain, a technology that shows the amount of money that each address or user holds. “The addresses with the most bitcoin are the exchanges. An oligarch who wants to buy large amounts of bitcoin will have to go through one of those platforms,” explained Javier Pastor, sales director of the Spanish cryptocurrency platform Bit2Me.

In order to register on a regulated exchange, users need to upload a passport and corroborating identification. If they want to buy cryptocurrency, they must also show the source of the money that they will use to buy it. “The idea is that all exchanges can be useful in police investigations, including ones on money laundering,” Pastor added.

No one can stop a person from giving a $50-bill to someone else. The same is true of bitcoin transactions. But intermediaries – such as banks or, in the case of cryptocurrency, exchanges – can be blocked.

How to find the oligarchs

Christine Lagarde, president of the European Central Bank (ECB), said on February 25, the day after the invasion began, that the EU needs legislation to regulate cryptocurrency transactions, among other measures to control the movement of Russian capital. The law already provides for ways for the government to intervene in cryptocurrency accounts, known as wallets.

“In Spain, the Tax Agency, through the National Fraud Investigation Office [ONIF], has specific measures to detect cryptocurrency transactions. Your property must be recorded in the declaration of assets abroad and your earnings are subject to income and patrimony tax,” Barrio explained. “The Spanish courts can block wallets operated by providers based in Spain or with branches in our country, and use judicial cooperation mechanisms in other cases,” he added.


Anyone who deposits large sums of dollars derived from bitcoins in Swiss bank accounts, as Russian oligarchs are prone to do, or in another tax haven, will automatically raise red flags. For French economist Thomas Piketty, pursuing these movements is actually simple: “It would be enough for Western countries to finally create an international financial registry that would keep track of who owns what in the different countries,” he wrote in an opinion piece for EL PAÍS.

Authorities can also selectively intervene before the currency conversion takes place. “There are companies, including the exchanges, that can mark wallets that have been identified as being related to the Russian government or its collaborators, just like those that come from hacking or drug trafficking. These transactions should be monitored and blocked, but not transactions from all Russian citizens,” said Jorge Soriano, co-founder and CEO of the cryptocurrency exchange Criptan.

Many industry professionals prefer blocking only certain blacklisted accounts over cutting off an entire country. “It’s hard to do, but it can be achieved if intelligence services identify bitcoin addresses of [Russian President Vladimir] Putin or other key people and then tell exchanges not to accept their transactions,” said Raúl Marcos, CEO of the exchange Carbono.com.

The crypto awakening

The use of cryptocurrencies, especially bitcoin, has skyrocketed in Russia and Ukraine since the war began. In a few days, over 140 million dollars worth of rubles has been converted to bitcoin, according to CryptoCompare data aggregated by Euronews. Russian citizens have turned to the decentralized digital currency as a way to maintain their purchasing power in the face of the ruble’s collapse, just as Venezuelans and Argentines did before them, when their economies began to flail. In Ukraine, which before the invasion was the fourth in the world in terms of crypto adoption, people have been converting their money into bitcoin so it can be easily transported – they can carry their savings on a USB drive, and protect them from devaluing at a time of deep uncertainty.

Meanwhile, the Ukrainian government is also relying on cryptocurrency donations to finance the country’s defense against Russia. The government’s official Twitter account has encouraged those who wish to help, to donate money to their bitcoin and Ethereum addresses. By March 1, donors had transferred more than $15 million in crypto. The Ukrainian NGO Come Back Alive has also raised $8.5 million in bitcoins since its founding in 2014, following the Russian invasion of Crimea.

Ukraine also plans to issue NFTs (non-fungible digital tokens) to support the war against Russia, according to the Financial Times. Last week, one of the founders of the Russian activist group Pussy Riot auctioned an NFT of the Ukrainian flag for more than €6 six million ($6.7 million), with the proceeds going to support those affected by the war.

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