As Caroline Malcolm, head of international policy at Chainalysis, points out, the transparent nature of blockchain technology makes it relatively easy for crypto intelligence firms to track funds associated with sanctioned entities.
“We are in a pretty unique position because of the transparency, durability and immutability of that public record,” explained Malcolm in an exclusive CoinTelegraph interview.
Governments around the world have expressed concern that Russia could use crypto to evade sanctions imposed in response to its military offensive against Ukraine.
Malcolm allayed these concerns, pointing out that there has been a substantial improvement in the crypto industry’s anti-money laundering and counter-terrorism efforts in recent years.
That means, depending on their jurisdictions, crypto exchanges are still required to enforce the same sanctions imposed on banks and other traditional financial intermediaries.
While sanctioned entities may be able to move money in private wallets, those movements can be easily tracked with blockchain intelligence tools like those developed by Chainalysis. In most cases, these entities would have to rely on a centralized exit point to cash out.
“We still don’t live in a world where you can stay in the crypto economy and buy all the goods and services you could want to buy,” explains Malcolm.
At that point, an exchange equipped with Chainalyisis technology would receive an alert highlighting the sanctioned funds, allowing the platform to freeze those funds.
According to Malcolm, these blockchain intelligence techniques make crypto less suitable for evading sanctions than traditional financial instruments.
“The blockchain crypto environment is in fact much more streamlined than any tools that could disrupt Russia’s use of a network of traditional bank transfers or, frankly, even physical money to evade sanctions,” said Malcolm.
Concerns remain that sanctioned entities may still rely on permissionless and decentralized protocols that do not require AML/KYC procedures.
“We are also currently developing new, lighter tools to provide decentralized protocols and platforms with an easy way to perform basic sanctions audits to help manage sanctions reputation and enforcement risks,” added Malcolm.
The blockchain ecosystem is well prepared for Russia’s possible attempts to evade sanctions through cryptocurrency.
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