Cryptocurrency and sanctioned nation states

Moving money across borders is meant to follow compliance rules and regulations that are set by governments and followed by the financial institutions. This was already a difficult process to enforce with shadowy LLCs and offshore banking. If you do not want to pay high taxes or you do not want to devalue your wealth in exchange for other currencies, moving money behind the scenes was your best bet for a long time. The cost would be a new company name, registering that company in a low tax country, as well as a couple of lawyers to sort it out and make it look like legitimate business. Cryptocurrency has upended this practice and individuals are not the ones to take advantage of this new way to avoid traditional banking. Nation states that have been sanctioned are turning to cryptocurrency when they have been sanctioned. These economic restrictions can lead to evasion tactics by using cryptocurrency when blocked from the global finance system (like Iran) or circumvent international sanctions (Venezuela and Russia) or generate income (North Korea). For these countries, international restrictions were meant to bring them to the diplomatic table but instead, they have pivoted to this new technology to ensure they do not fail economically. 

The original idea of cryptocurrency was to have a decentralised banking system that operated outside of the traditional. The original cryptocurrency Bitcoin was meant to be “borderless, requiring only an internet connection to send or spend it anywhere on Earth. While the idea was to democratise finance, its semi-anonymous nature meant that many of the early adopters were people using it to buy and sell drugs and other nefarious items on the dark web.” This has also led to the adoptions of memcoins, NFTs, and all thousands of other cryptocurrencies where some are recognised as legal tender by official governments and global financial institutions. 

The financial scale of cryptocurrency used in sanctioned nations is staggering: “Iran alone saw cryptocurrency outflows surge 70% to $4.18 billion in 2024, while Russia processed $49 billion in crypto payments during just the fourth quarter of 2023 through the first quarter of 2024. North Korea's Lazarus Group stole over $1.34 billion in cryptocurrency during 2024, representing 61% of all crypto theft globally.” These are not individuals who see this new technology as beneficial because it is decentralised, more secure, and has potential for high returns. These are countries who are looking to keep their economy afloat while pressured by sanctions, such as the termination of accessing global banking systems (SWIFT), to cut off payments to Russia for its imports and exports. 

Using cryptocurrencies that have favourable exchange rates to pay for exports is seen as essential to keep trade going with other countries that are willing to participate in this shadow network. Since there is such a large volume of cryptocurrencies to choose from, they can be manipulated to service all kind of financial needs: 

“Bitcoin operates on a decentralized network with no central authority to exclude users. Stablecoins like Tether provide dollar-denominated value without requiring access to U.S. banking infrastructure. Ethereum enables programmable money through smart contracts that can automate complex financial arrangements.”

There is very limited regulation on this currency system, which is the whole point of being deregulated, but some financial institutions are trying to crackdown on money laundering. One cryptocurrency, Garantex, was sanctioned by the U.S. Treasury’s Office of Foreign Assets Control (OFAC) in 2022 for processing tens of millions of dollars in transactions linked to illicit activity. The activity was found to be from a UAV manufacturer called KB Vostok, who used cryptocurrency to sell $40 million worth of military drones, processing payments through Garantex to circumvent traditional banking restrictions. The blockchain was supposedly closed down, but Transparency International Russia has discovered that instead, a new cryptocurrency system evolved into “ Exved, a cross-border payment processing platform aimed in part at facilitating the import of dual-use goods into Russia, and MKAN Coin, a Telegram-based crypto exchange operating out of Dubai that replicates Garantex’s core functions.” This article only scratches the surface of how sanctioned nations are impacting the global financial systems. The technological development and alternatives that come from cryptocurrency vastly outpaces financial regulations and international law. What the future holds for economic sanctions requires more scrutiny on deregulated digital assets and its impact on sanctioned nations.