UK Requires Crypto Exchanges to Report Alleged Sanctions Violations

Crypto exchanges must report suspected sanctions breaches to UK authorities under new rules introduced amid fears bitcoin and other crypto-assets could be used to dodge restrictions imposed in response to the invasion. Ukraine by Russia.

The official guidelines were updated on August 30 to explicitly include “crypto-assets” among those that must be frozen if sanctions are imposed on a person or company. Besides digital currencies, such as bitcoin, ether, and tether, cryptoassets could include other theoretically valuable digital assets such as non-fungible tokens.

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

Financial sanctions against people and businesses linked to Vladimir Putin’s regime were among the UK’s most significant responses to the invasion of Ukraine.

Sanctions targets have included oligarchs and relatives with vested interests in crypto-assets. Among them is Vladimir Potanin, the “nickel king” who was previously the second richest man in Russia, who backed Atomyze, a Swiss blockchain company. Said Gutseriev, son of oligarch Mikhail, held a stake in a Belarus-based cryptocurrency exchange until August 2021, before being hit with sanctions the same day as Potanin in June. Metals billionaire Oleg Deripaska previously urged Russia’s central bank to allow bitcoin to be used as a form of payment. There is no indication that they used crypto-assets to evade 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 daughter-in-law of Foreign Minister Sergei Lavrov, and Elizaveta Peskova, the daughter of Putin’s spokesman Dmitry. Peskov. The exchange previously dismissed fears that the crypto was being used to evade sanctions.

Using cryptocurrencies to evade sanctions and move money around the world was already illegal in the UK under laws that cover all “economic resources”. However, the change underscores authorities’ concern over relatively new assets, which could be useful in evading sanctions as users do not rely on regulated entities to transact.

Anna Bradshaw, partner at Peters & Peters, a London law firm, said the UK’s decision was “in line with the broader expansion of financial services and financial crime regulation to the crypto sector. “.

“Crypto and virtual assets are not treated any differently than any other type of assets for the purposes of an asset freeze,” she said. “That said, reliance on crypto or virtual currencies could potentially make it more difficult to detect that a sanctioned party is involved in, or connected to, a sanctioned trade or other sanctioned activity – at least in time for that measures be taken to prevent it.”

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

A Treasury spokesperson said: “Addressing the risk of crypto-assets being used to breach or circumvent financial sanctions is critical. These new requirements will cover companies that record holdings or enable the transfer of crypto-assets and are therefore most likely to hold relevant information.

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