Binance, the world’s largest cryptocurrency exchange, informed Russian customers Thursday (April 21) that it is cutting off all accounts with more than 10,000 euros (about $10,800).
That comes as a result of the European Union’s fifth sanctions package, Binance said in its announcement, adding that it expects other exchanges to follow.
“While these measures are potentially restrictive to normal Russian citizens, Binance must continue to lead the industry in implementing these sanctions,” the announcement stated.
Announced April 8, the EU’s latest measures to punish Russia over its invasion of Ukraine included a “prohibition on providing high-value crypto-asset services to Russia” in order to close “potential loopholes.”
That crypto restriction was just 10% of the existing 100,000-euro limit imposed on traditional fiat account deposits. Both sets of financial restrictions apply to Russian nationals living outside the country.
Binance’s move came just two days after the International Monetary Fund (IMF) called the growing “cryptoization” of economies a threat to the ability of regulators’ ability to impose sanctions.
“The crypto ecosystem, however, could allow users to circumvent” traditional sanctions controls, the IMF warned, citing unregulated decentralized finance (DeFi), non-complaint smaller centralized exchanges and privacy tools like mixers that make tracing cryptocurrency transactions much harder.
It also called for cryptocurrency to be brought under the same capital control laws as fiat currencies.
But crypto’s far lower cutoff threshold means not only will it be harder to use bitcoin and other digital assets to evade sanctions, it will become increasingly hard to use them for payments.
There are several reasons for this, the most obvious being merchants will be limited in their ability to accept crypto — at least through existing crypto payments channels — as their accounts could quickly pass the limit. And there is no guarantee that the limit won’t be reduced even further.
Of course, cutting off transactions by exchanges and other virtual asset service providers (VASPs) doesn’t make it impossible to make or take payments — that can be done with a simple crypto wallet or by accessing DeFi exchanges that do not follow anti-money-laundering (AML) or sanctions regulations, as there is no centralized management to impose them.
And while software wallets and fully-offline hardware wallets are harder if not impossible to restrict, they are more complex than the larger exchange’s accounts, which — AML verification aside — are generally as simple as setting up an account at any digital payments service. That could prove a formidable barrier to tech-averse, would-be crypto users.
And they have their own weaknesses, such as software wallets’ vulnerability to hacking and hardware wallets’ vulnerability to being lost.
Libertarian Values in Play
Binance CEO Changpeng “CZ” Zhao was one of several high-profile exchange heads to speak out against a Ukrainian plea for a complete Russian cutoff, saying going beyond legal requirements would be unethical.
Brian Armstrong, CEO of Nasdaq-listed crypto exchange Coinbase, echoed the sentiment.
“We believe everyone deserves access to basic financial services unless the law says otherwise,” he tweeted March 4. “Ordinary Russians are using crypto as a lifeline now that their currency has collapsed. Many of them likely oppose what their country is doing, and a ban would hurt them, too.”
8/ Some ordinary Russians are using crypto as a lifeline now that their currency has collapsed. Many of them likely oppose what their country is doing, and a ban would hurt them, too. That said, if the US government decides to impose a ban, we will of course follow those laws.
— Brian Armstrong – barmstrong.eth (@brian_armstrong) March 4, 2022
That came in the wake of a call by Ukraine’s vice prime minister, Mykhailo Fedorov, for exchanges to cut off all Russians.
“It’s crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users,” Fedorov said, to little effect.