The U.S. Senators Elisabeth Warren, Mark R. Warner, Sherrod Brown and Jack Reed recently asked in a letter to the U.S. Treasury how it intends to prevent that „criminals, rogue states and other actors may use digital assets and alternative payment plattforms to hide cross-border transactions for nefarious purposes“. This question came up in the course of new sanctions against Russia, Russian individuals and companies due to the Russian invasion of Ukraine.
There are different reactions in the cryptocurrency market to the new sanctions. Coinbase, the largest U.S. crypto exchange, says it currently blocks 25,000 wallet addresses of Russian indivuduals and entities that are believed to have engaged in illicit activities. This figure reflects not only measures since the invasion but also those of earlier sanctions (e.g. the annexation of the Crimean peninsula in 2014).
It remains unclear, if Coinbase just refuses to execute trades from these wallet addresses or if it actually freezes digital assets linked to theses wallets. As crypto custodian the latter would be possible.
Binance, the world´s largest cryptocurrency exchange, says that it does not endorse preemptive sanctions as cryptocurrencies are the only means for many Russians make ends meet as the Ruble lost almost half of its value. According to Binance´s CEO Brian Armstrong, everyone deserves access to financial services unless the law says otherwise.
How is situation in Germany?
Coinbase´s German subsidiary, Coinbase Germany GmbH, is one of only three crypto custodians. Crypto custodians are financial service providers according to the German Banking Act (KWG) and as such, Coinbase Germany has to fulfill the obligations under the Anti-Money-Laundering Law (GWG). If there is a transaction presumably involving a person that is part of the EU Regulation on sanctions on Russia and Belarus, the Anti-Money-Laundering Law obliges Coinbase Germany to give a „notice of suspect“ to the German Financial Intelligence Unit (FIU). Coinbase has the further obligation to halt the transaction for up to three business days in order to give the FIU the chance to freeze the digital assets. If there is no direction by the FIU Coinbase Germany is „free“ to transfer the assets.
If Coinbase Germany decides not to transfer the assets but to freeze them without direction of the FIU, the client might have a case for a breach of contract – depending on the crypto custodian rules of Coinbase Germany.
To sum up: Regulation matters.
