Is it easy to hide money in the crypto economy? The case of Russia

Russia’s stance on crypto assets has clearly changed since its invasion of Ukraine. Throughout 2021, the Bank of Russia was set on strictly regulating crypto activities, maybe even close to all-out banning them from Russian territory in an attempt to protect investors and to close down on criminal activities. Since the invasion of Ukraine, this has clearly changed, even drastically so. Russia is now considering permitting crypto mining, investment and also payment to some extent. To shed light on possible reasons for this paradigm change, our study examines the potential for sanction evasion through the crypto economy. We show examples of countries that have already developed methods of using the crypto economy to circumvent sanctions more or less successfully. In our work, we distinguish between wealth preservation and the search for alternative payment channels for trade as two central motivations for the circumvention of sanctions, taking a deeper look into the EU sanctions regime as well as crypto market liquidity. Based on real world examples, we derive three hypothetical methods for circumventing sanctions through the crypto economy, i.e. the direct peer-to-peer system, the intermediary model and the escrow model. All these methods have major weaknesses though, and especially in light of low crypto market liquidity, we come to the conclusion that, for the time being, the crypto economy does not seem to offer sufficient potential to governments or major oligarchs for circumventing sanctions on a large scale.