Posted 3 months ago | by Catoshi Nakamoto
The U.S. Treasury and U.S. Federal Reserve are discussing immediate regulations with Congress for the cryptocurrency industry requiring software providers and exchanges to strongly adhere to sanctions, following intelligence that Russian oligarchs have been using USDT and BTC to evade the embargo.
According to multiple sources, the U.S. government is getting ready to announce historic regulations on the cryptocurrency industry. This is the reason why Infura a software provider allowing developers to connect to the Ethereum blockchain which is owned by Consensys, has begun restricting countries from using their API. This resulted in multiple reports about Metamask (which uses Infura to talk to the Ethereum blockchain) blocking users in Venezuela, Russia, and Iran.
Metamask published a blog post explaining that its services will not be available to users in “certain jurisdictions due to legal compliance.”
Although, Consensys meant to block a different IP range. Rather the company was trying to add the IP range of two separatist regions in Ukraine: Donetsk and Luhansk according to a Tweet thread.
The company apologized in a long Twitter thread for accidentally blocking connections to their API to existing applications. U.S. sanctions apply to any businesses operating in the U.S.to make sure that no funds make their way to any individuals, companies, or governments on the sanctions list.
Consensys further confirmed as a U.S. company it monitors the U.S. sanctions list, the company told Coindesk.
“Infura closely monitors changes to US sanctions programs announced by the Office of Foreign Assets Control and narrowly tailors its internal controls to comply with the law. Currently, those regions are Iran, North Korea, Cuba, Syria, and the Crimea, Donetsk, and Luhansk regions of Ukraine. Infura’s compliance with the law is required and does not necessarily reflect the service’s views on any public policy issue.”
On the backdraft of the news that Consenys is blocking IPs, the Office of Foreign Assets Control (OFAC) an arm under the U.S. Treasury recently published rules stemming from a Biden 2021 executive order, “Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation.”
The rules released by the OFAC aim to stop any movement of funds in crypto or otherwise to Russian Federation-controlled entities which have been sanctioned by the U.S. Treasury. The executive order itself is far more than just crypto, however, digital asses are mentioned in the sanctions, specifically noting that digital currencies shouldn’t be used to circumvent the embargo.
The directive states “deceptive or structured transactions or dealings to circumvent any United States sanctions, including through the use of digital currencies or assets or the use of physical assets,” as unlawful activities.
OFAC further expressed that it plans to update these regulations in the future.
“OFAC intends to supplement this part 587 [the regulations] with a more comprehensive set of regulations, which may include additional interpretive guidance and definitions, general licenses, and other regulatory provisions,” the notice reads on the Treasury’s website.
To be clear, the OFAC enforcement is not related to the coming executive order on cryptocurrency by President Joe Biden.
It’s further worth noting that Janet Yellen, the head of the U.S. Treasury was recently sent a letter from Senate Democrats—including Elizabeth Warren, Mark Warner, Jack Reed, and Banking Committee Chair Sherrod Brown which stated the following: “Strong enforcement of sanctions compliance in the cryptocurrency industry is critical given that digital assets, which allow entities to bypass the traditional financial system, may increasingly be used as a tool for sanctions evasion.”
Last year, a report released by the Biden administration warned that digital assets pose a risk to the United States’ embargo program.
Recently the U.S. and European Union have enforced serious sanctions against Russia after its full-scale invasion of Ukraine. In addition to cutting off Russia from hundreds of billions of dollars in foreign reserves, the countries have also sanctioned Russian banks’ turning off their connection with the SWIFT communications network, the Western countries have also imposed restrictions on state-tied companies, government officials, and oligarchs within the lengthy sanctions list.
The U.S. isn’t the only country that is preparing cryptocurrency regulation to prevent evasion of the massive sanctions. The European Union is also set to crackdown on Russia’s ability to avoid sanctions according to France’s Finance Minister Bruno Le Maire.
It’s important to note that the EU Parliament is set to vote on the Markets in Digital Assets, or MiCA regulation next week (March 14th) according to Stefan Berger, who leads the European Parliament’s ECON Committee. This is after weeks of delay due to a provision that if it would have passed it would effectively ban Proof-of-work cryptocurrencies i.e. Bitcoin. That language is no longer being used in the final copy which is up for a vote.
Although, even if that bill passes in the EU, The Block reports, that “the bill will still have to go through trilogue debates including the European Commission, which put together the initial proposal, and the European Council, which passed its own version of MiCA months ago. Those competing visions will face consolidation before becoming law.”
It is, however, possible for the European Council to pass a quicker law in regards to Russia evading sanctions. It’s highly likely that such a bill would be fast-tracked in both the U.S. and EU alike and would bypass Congress and its European equivalent law body the European Parliament.
Each country’s sanctions are different and do not necessarily mean that all of a country’s civilians are blocked from using a service. However, with Russia and Russian separatist regions that will more than likely be the case.
Even Brian Armstrong, the CEO of Coinbase is aware of the coming regulations, posting on Twitter that the exchange would comply with regulations to prevent sanctioned countries from using its services.
8/ Some ordinary Russians are using crypto as a lifeline now that their currency has collapsed. Many of them likely oppose what their country is doing, and a ban would hurt them, too. That said, if the US government decides to impose a ban, we will of course follow those laws.
— Brian Armstrong – barmstrong.eth (@brian_armstrong) March 4, 2022
Interestingly enough, the Bitcoin Twitter account also posted a Tweet of a picture of a black swan which in financial markets is used to convey an ill omen, before $40K support was broken.
— Bitcoin (@Bitcoin) March 3, 2022
It’s not just Infura and Metamask, OpenSea the world’s largest NFT marketplace also stated that it will comply with U.S. sanctions.
“OpenSea blocks users and territories on the U.S. sanctions list from using our services, including buying, selling, or transferring NFTs,” OpenSea said in a statement to CoinDesk on Thursday, after users in countries under various sanctions from the U.S. complained they had lost access to their accounts.
Binance, the world’s largest cryptocurrency exchange, also said it would block the accounts of sanctioned Russians. However, the exchange stated that it would not freeze all Russian accounts, as some Ukrainian politicians have asked the exchange to do as reported by CNBC.
Internally many cryptocurrency insiders know what’s coming, as Ben Armstrong of Bitboy Crypto reported many people in the space including — developers, influencers, and projects are receiving letters from the Security Exchange Commission (SEC.) You can watch Bitboy Crypto briefly explain what’s going on in the crypto industry below.
It’s very important to note that exchanges, custodians, crypto companies, and any individuals who are operating within the U.S. are already obligated to enforce sanctions imposed against other countries by the Treasury. In fact, a press release from the U.S. Attorney’s Office states that BitMEX, did not create appropriate anti-money laundering or know-your-customer safeguards on its platform, which made it a “vehicle for sanctions violations.”
However, many crypto companies have ignored sanctions up until this point and according to sources, the U.S. will soon threaten these businesses with fines and even shut them down in the more extreme cases. It’s important to note that sanctions are usually for individuals, government entities, and companies, but in some cases, the U.S. may even put a sanction on the use of U.S. technology by foreign companies in other countries.
This comes as Biden is expected to sign an executive order on cryptocurrency this week which has industry speculators wondering what this will entail in its fine print and what its passage could mean for the overall crypto space.