Binance and other cryptocurrency exchanges have allegedly helped governments circumvent sanctions. The governments of the world are not idle in the face of this problem, but they have a lot of work ahead. It will not be easy to stop illicit activity without invading legitimate crypto transactions.
According to mounting evidence compiled by Chainalysis, cryptocurrencies are being used to evade economic sanctions. This is not a new problem, but it is escalating.
A large portion of the illicit funds in recent months have flowed between Binance and Iran’s largest cryptocurrency exchange, Nobitex. Reportedly, most of the transactions were made in the low-profile cryptocurrency TRON, making it easy for users to hide their identities.
Sanction Hunters
According to Reuters, based on data compiled by Chainalysis, the flow of transactions between Binance and Iran’s largest exchange, Nobitex, allowed Iranian companies to circumvent sanctions and conduct about $8 billion worth of transactions.
In addition, three-quarters of the funds were in the form of TRON, a “low-profile” cryptocurrency that helps users remain anonymous and offline, thus fostering clandestine and criminal operations.
Chainalysis stated in a recent preview of its 2023 Crypto Crime Report that last year, illicit transactions involving crypto increased for the second year in a row. In total, they reached $20.100 million, the highest figure in history. According to the data, 44% of that total flow of deals was activity involving sanctioned governments or organizations.
Regulators Target Crypto Addresses
Governments and law enforcement agencies are not sitting idly by on the problem, the JD Supra report makes clear. They are cracking down on those who flout economic sanctions by using crypto assets.
The US Office of Financial Assets Control (OFAC) has not only imposed sanctions on violators but has also expanded its operations to target cryptocurrency addresses linked to bad actors. Additionally, in the UK, lawmakers introduced regulations requiring companies to report any breach of OFAC-imposed financial sanctions.
Sanctions are Strengthened
According to JD Supra, as the trends worsen, governments and other regulators may have revised their approach. They will have to intensify their enforcement efforts to ensure the sanctions stick.
A stricter approach could help stem the flow of illicit transactions and money laundering. However, the report makes it clear that this will not be a quick and easy solution, as the problem is complex, so issues of regulatory overreach arise.
Officials must exercise caution when going after sanctions violators so that they do not trample on the rights of legitimate cryptocurrency users.
On the downside, more restrictive regulation could be seen, such as OFAC’s decision to sanction the Tornado Cash software protocol, which could create potential repercussions for legitimate actors that interact with it.
The good news is that according to Chainalysis, cryptocurrency services are generally mostly cooperative in the face of requests for help from governments. Thus, exchanges know that it does not help them that rogue states that violate sanctions sully the name of cryptocurrencies.
In short, regulating cryptocurrencies to ensure compliance with economic sanctions is a complex task. It requires collaboration between governments and regulators, as well as the cooperation of crypto exchanges. Only then there will be the hope of curbing the use of cryptocurrencies to evade economic sanctions.
By Audy Castaneda
