– Current context: “de-dollarization” of the global economy, rise of cryptocurrencies
In the context of the geopolitical situation and economic sanctions, how can cryptocurrencies be affected?
State of play
Already begun in recent months due to the escalation of tensions between Russia and NATO, the pressure has accelerated on the former, following the military operation in Ukraine at the end of February. Very quickly, numerous sanctions, also monetary and financial, were taken against Russia.
A recent Bilan column indicated ” Above all, Russia has implemented the “fortress” strategy to reduce its economic dependence vis-à-vis the West, in particular by favoring the de-dollarization of its economy. This policy has led to the accumulation of 640 billion dollars in foreign exchange reserves and the strengthening of its sovereign fund endowed with 183 billion. »
In addition to the classic strategy mentioned above, the question arises, in connection with the immense diffusion of cryptocurrencies, of their use in order to separate from the American dollar and consequently to free oneself from the measures that could be taken in relation to this currency. A recent article teaches us that ” Volumes of ruble cryptocurrency purchases are at record highs and bitcoin prices have been climbing in recent days… “. We are told that North Korea or Iran have used cryptocurrencies to resist economic sanctions against them. However, the author believes that the use of cryptocurrencies by Russia to continue exporting raw materials is unlikely, since the volumes of cryptocurrencies are insufficient compared to the size of these export markets. Indeed, after surging just after the attack at the end of February, it would seem that crypto-ruble exchanges then declined.
The phenomenon of “de-dollarization” is not entirely new, although recent. As noted in an opinion published in early 2022, El Salvador, for example, chose Bitcoin as its official currency, mainly to protect itself from the devaluation of its national currency. A country with a much larger economy, Mexico, is also considering adopting Bitcoin as its national currency..
As you are no doubt aware, trading in US dollars can create a connection with the legal order of the US, regardless of where the transaction is carried out. We remember a few years ago the colossal fine inflicted on BNP Paribas, which had been found guilty of having violated the US embargo by continuing transactions in USD with Iran, Cuba and the Sudan and DoJ’s explanation BNP Paribas Agrees to Plead Guilty and to Pay $8.9 Billion for Illegally Processing Financial Transactions for Countries Subject to US Economic Sanctions | Takeover bid | Department of Justice. In addition to huge fines, the arsenal of US measures includes a ban on using the dollar, which BNP Paribas feared. Of course, completely avoiding the dollar in theory has the natural consequence of not falling into these extraterritorial American rules.
In addition, another very important aspect is the SWIFT system, the world standard for bank transfers, in which information relating to customers (principals and recipients in particular) must be transmitted and are stored by certain authorities, in particular American. In the event of a sanction, the exclusion of institutes from the SWIFT system considerably hinders them in their payment transactions. As we know, Russian banks were recently excluded from SWIFT.
Of course, and this is even the DNA and one of the main reasons for the existence of cryptocurrencies, the latter are in no way connected to States, to banks (central or not) and even less to jurisdictions or payment systems such as SWIFT for example; they could thus be “immune” to the measures taken by States. For example, the CEO of Kraken has publicly announced that this major platform will not would not freeze accounts related to military attacks. Coinbase, on the other hand, blocked Russian accounts.
In conclusion, we can only note that cryptocurrencies, especially those enjoying significant liquidity, could be used by certain people, so as not to find themselves subject to sanctions imposed by States or by international organizations. It is understood that the rapid increase in cryptocurrency transactions could possibly result from this phenomenon.
However, as we understand from the beginning of our law studies at the University, the legal order and the “law” are never fixed and follow the evolutions of practice.
We learn from cryptocurrency websites that Switzerland, by taking over the EU sanctions, would have indicated its intention to block the also crypto assets of certain Russian citizens close to power.
No official Swiss statement has confirmed this to our knowledge.
Ultimately, the “topical” Swiss regulatory basis, the Ordinance of the Federal Council instituting measures in connection with the situation in Ukraineeffectively includes crypto-assets in the assets that must be frozen with regard to certain Russian nationals (i.e. sanctioned persons, the list of which is published by SECO). Exceptions are only available on an exceptional basis and with the agreement of SECO. Consequently, financial intermediaries theoretically have no leeway and must proceed with these blockages. It will also show that they have done their job well upstream, as I mentioned in an opinion recentto identify the holder(s) and the economic beneficiary(ies) of said crypto assets, in application of anti-money laundering obligations ” Know your customer “. Consequently, the said financial intermediaries must logically produce to SECO (confidential) lists of sanctioned persons and block their assets without delay in application of this Ordinance and possibly, depending on the circumstances, other sanctions regimes adopted by the European Union or other jurisdictions, to the extent applicable.
The above is an example, even a textbook case, of the adaptation of positive law (enacted by regulatory and no legislative), which can be extremely rapid, to crisis situations which may require very urgent action. In this case, these Swiss sanctions measures were taken a few days after the start of the military operation.
Of course, it is not excluded that disgruntled crypto-asset owners, or even potentially financial intermediaries, will appeal against such sanctions/blocking decisions, if they see it as a legal problem. As always, the application of these measures will ultimately be shaped by the practice of administrative authorities and judicial decisions, which should obviously be followed with the greatest attention.