With the concerns of Janet Yellen and Hillary Clinton notwithstanding, there isn’t enough cryptocurrency in the world to bail out Russia from the economic hole which it now finds itself to be settling into. Even if there were a large enough supply, it probably wouldn’t enable the state to escape the scourge of a Western embargo.

As David Carlisle, director of policy and regulatory affairs at Elliptic, told Cointelegraph: “It’s critical to keep in mind that even where nefarious actors attempt to use crypto, law enforcement can trace this activity owing to its transparency, and crypto businesses can use solutions such as blockchain analytics to comply with sanctions requirements.”

Despite Clinton’s worries that the largest crypto exchanges aren’t doing enough to shut Russia’s possible escape hatch, it isn’t even clear that Russia’s political and business elite are actually even looking for a cryptocurrency solution.

“Will Russia try to work around sanctions? Yes,” Matthew Le Merle, cofounder and managing partner of Blockchain Coinvestors, told Cointelegraph, but they won’t use crypto to do it. They’ll find other means through the already established (incumbent) global financial system — like the offshore entities and tax havens revealed in the 2016 Panama Papers.

Digital currencies are simply not a good way for Russian oligarchs and sanctions-evading institutions to move money. “You’d be a fool to use Bitcoin if you were a bad actor,” added Le Merle. With the clustering technologies and analytics capacity that the U.S. government and other enforcement agencies have today, “They know how to come after you.”

Recent events raised a slew of crypto-related questions — albeit overshadowed by the immense human tragedy unfolding in Europe, its most dire since the Bosnian War, if not WWII. Would the Russian government, along with its financial institutions, high officials and oligarchs, seek relief from Western sanctions relief in crypto and, if so, would it work?

If Russia’s ruling elites were to find haven in decentralized digital currencies — another black eye for crypto’s already-challenged reputation in some quarters — could that still be offset by the fact that crypto funds were flowing into Ukraine from individual (non-government) supporters abroad? Donations have been around $55 million since the start of the conflict, according to Elliptic. In other words, was the real lesson to be drawn that crypto is just a tool to work for victims and victimizers alike while being politically “neutral?”

Finally, what about the war’s billions of onlookers? What conclusions could be draw from the devastation and refugee flight of one million people already, according to the United Nations? Maybe something about the fragility of human society and institutions generally? And, if so, would they gravitate to decentralized digital currencies as part of an offshore wealth diversification strategy?

Russia may try to raise the escape hatch, but…

To be sure, it is no surprise that sanctioned Russians would reach for crypto under these circumstances. “It is highly likely sanctioned Russian individuals and entities will look to crypto as one avenue for skirting restrictions,” said Carlisle, a view shared by others including the U.S. Treasury.

More surprising, however, is how ineffective this might prove. “I don’t believe that the Russian government can rely on cryptocurrencies to offset sanctions’ impact,” Max Dilendorf, partner at the Dilendorf Law Firm, told Cointelegraph. “The economic impact caused by sanctions could run into hundreds of billions of dollars.” There probably isn’t enough Bitcoin (BTC) or crypto in the world to mitigate economic damage of that magnitude, he said. Meanwhile, Carlisle added:

“Crypto alone can’t sustain Russia’s needs now. Russia’s total annual imports are more than $200 billion and its banking sector’s total assets are $1.4 trillion. There is simply no way crypto can fill the gap Russia requires.”

Michael Parker, counsel and head of the Anti-Money Laundering and sanctions practice at Ferrari & Associates, agreed that there basically isn’t enough crypto in the world to rescue Russia from its sanctions grip — though crypto could play some role at the margins by plugging holes.

Moreover, the idea that Russia suddenly could move out of USD into crypto for international transactions is “far fetched” for other reasons too, Parker, a former enforcement section chief at the U.S. Office of Foreign Assets Control (OFAC), told Cointelegraph.

There is the matter of anonymity — or lack thereof, for instance. Moving commodities on a large global scale is bound to be noticed, said Parker. Then, too, there is crypto’s volatility. Are commodities traders prepared to lose 10% within hours (potentially) in a commodities transaction because of crypto’s price gyrations? USD is the world’s de facto reserve currency for a reason — it is exceptionally stable.

Meanwhile, OFAC has been homing in on individuals or entities for violating its sanctions rules in the past year, and “the minute the U.S. government learns which wallet belongs to the Russian government or its supporting groups, these blockchain wallets will be immediately added to OFAC’s SDN list,” added Dilendorf.

Fact:
Banks (most of them I hope) follow sanction rules.
Crypto exchanges (at least Binance) follow sanction rules.

Media:
Crypto exchanges don’t sanction Russia normal people.
Crypto exchanges don’t follow sanction rules.

‍♂️

— CZ Binance (@cz_binance) March 3, 2022

Centralized crypto exchanges, too, now have the means to identify malefactors, given the rapid advances in analytics techniques and screening software. It’s more a question: “Do they have the will to go after them,” said Parker. If they do, “they now have the tools.”

One exception may be decentralized exchanges (DEXs), however. According to Dilendorf: “The question is how well individual decentralized finance traders are equipped in spotting sanctioned wallets in peer-to-peer transactions” or completing necessary compliance checks. These decentralized protocols have allowed wallets based not just in Russia but also sanctioned countries like Iran and North Korea to trade on their platforms, said Dilendorf, adding:

“U.S. regulators must work with the international community and private actors to increase AML/CFT controls of DeFi networks to ensure that nefarious actors are not using these platforms to evade regulations and sanctions.”

What about Bitcoin mining? Russia is now the world’s third-largest BTC mining country — couldn’t it exploit that process to evade sanctions, as Iran has done to some degree? “Bitcoin mining could technically only help mini oligarchs and small businesses,” answered Dilendorf. “There’s not enough muscle there to offset sanctions.”

Ordinary Russians have not been sanctioned

In the latest discussions, it’s sometimes overlooked that the sanctions levied by the U.S and its Western partners against Russia are not broadly based. They only target Russia’s ten largest financial institutions like Sberbank and some 90 other designated entities, as well as “Russian elites and their family members,” according to the U.S. Treasury. Significantly, they aren’t being applied to ordinary Russian citizens and most businesses, as Parker explains.

Say a U.S. business has been using the services of a Russian software developer. The U.S. firm had been paying the developer through a series of bank transfers ending with Sberbank. Sberbank can no longer be used under the new sanctions regime, but the U.S. firm can still employ the Russian developer and pay that person in crypto. Parker further told Cointelegraph:

“Using crypto to transact in place of designated Russian banks is not sanctions evasion — it’s sanctions compliance.”

That is, crypto provides a legal alternative to keep doing business with Russian workers, as long as that individual is not on the list of designated businesses covered by U.S. sanctions or otherwise subject to U.S. sanctions. Not all sanctions regimes such as Iran or North Korea are so fine-grained as this one. “Russian citizens have not been sanctioned,” emphasized Parker.

The power of a decentralized technology

On the other side of the border, cryptocurrencies have already played a minor supporting role in the Ukrainian resistance story.

The Ukrainian government and NGOs providing support to the military raised around $55 million through more than 102,000 crypto-asset donations, as of March 2. “This includes a $5.8 million donation by Polkadot founder Gavin Wood and a CryptoPunk NFT worth over $200,000.”

“The ability of the Ukrainian government to crowdfund with crypto in a time of desperation demonstrates the power of this open decentralized technology,” Carlisle told Cointelegraph.

Crypto use is likely to grow among the general populace in both nations, some believe. As Le Merle noted in a press release made available to Cointelegraph: “Russian and Ukrainian citizens need to find a reliable store of value right now and it appears that bitcoin is an option outside the oversight of their respective governments — the price has been going up this week in light of this.”

But, the even bigger story may be the millions (potentially) of Ukrainians and Russians in flight, leaving their respective countries and, in some instances, carrying everything they own including their jewels and gold. Many can expect to lose these valuables on the road before they reach their destinations.

“A guy with a gun will take it,” said Le Merle. That’s the history of fleeing refugees, whether from France in WWII or Syria in more recent times. “Ukrainians are already buying Bitcoin,” which is an answer to this problem. Le Merle continued, “but, you can’t use it in Ukraine now,” because it requires electricity and internet access and these are no longer a given.

What they really needed to do was buy crypto and send their seed codes to extended families or trusted parties outside the country — safeguarding at least part of their wealth, Le Merle told Cointelegraph.

This lesson won’t be lost on the four billion souls that Le Merle estimates live in jurisdictions that can’t trust their governments not to confiscate their wealth, whether directly or indirectly, by mismanaging and hyper-inflating their economies. “Don’t wait until the last minute to get your wealth offshore,” Le Merle said.