Russia is looking at sanctions workarounds in energy, gold, and bitcoin

By: April Carson



The Russian government is desperately attempting to keep the country's economy functioning following the harsh penalties imposed on it and the ruble's collapse. That means finding ways around Western economic sanctions, even as his troops continue to invade Ukraine for Vladimir Putin.


Russia is expected to prioritize energy sales and leaning on the country's reserves in gold and Chinese currency to soften the blow of the financial penalties, according to former Treasury Department officials and sanctions experts. Putin will also deal in cryptocurrency, rely on Russia's ties with China, and move money through smaller banks and accounts belonging to high-ranking families that are not covered by the restrictions.


"The most prevalent areas in which Russia is active right now are China and energy," according to John Smith, the former head of Treasury's financial intelligence and enforcement agency.


The United States and the European Union have imposed restrictions on Russia's major banks and the country's most powerful individuals, seized assets from its Central Bank located outside of Russia, and banned financial institutions from using the SWIFT banking network.


"Whether or not they're going to look closer to China, whether or not they're going to make up for lost goods and services from the West they'd usually get," Smith said. "They're also betting that their huge energy stockpiles will continue to be in demand, particularly during this cold winter. There's considerably more money to be made by selling it if they can get it to market."


The 30-year agreement between Russia and China was signed last month, allowing for the supply of Russian gas to China. In addition, as previously reported , China announced on Monday that it would allow grain imports from all regions of Russia for the first time.


Despite everything, Smith said the Chinese and others will now "be driving incredibly hard bargains," as Russia has fewer eager purchasers. The Chinese government will want to avoid being subjected to secondary sanctions or sanction violations enforcement, he added.


According to a senior administration official, the Biden administration is developing a "targeted tactical plan" to prevent cryptocurrency from becoming a tool for Moscow to use to avoid penalties.


The Biden administration official, who spoke on the condition of anonymity because the new measures on cryptocurrency have not yet been announced, said they are looking to shore up as many areas as possible while ensuring that sanctions on Russia have maximum impact.


The administration's efforts are informed by past experiences in Iran and Venezuela, the source said. Additional export restrictions and additional sanction targets will be announced in the coming days and weeks to combat Russian sanction-evasion attempts, the official added.


U.S. officials have already been on the lookout for Moscow's attempts to use and establish front companies and alternative financial institutions to avoid penalties.


On Monday, the United States took things a step further and blocked any assets of Russia's Central Bank in the United States or controlled by Americans. The Obama administration predicted that the measure might have an impact on hundreds of billions of dollars worth of Russian finance.


The most recent adjustments, however, included a provision allowing companies to make energy-related transactions with the bank. The penalties also do not impact Putin's gold reserves, which he has been amassing for years.


According to Dr. Tyler Kustra, an assistant professor of politics at the University of Nottingham who has researched economic sanctions, Moscow had already been developing a "Fortress Russia economy" - producing many goods domestically even if it was easier to import them – to protect the economy from penalties.


Russia's food is largely produced within the country, but some of it does not compare with similar foreign-made products, and others cannot be substituted, according to him.


"My friends in Moscow tell me, 'It's clear that they've never really understood cheese,'" Kustra added.


Russia may attempt to prop up its financial transactions by increasing reliance on cryptocurrency, according to David Szakonyi, a political science professor at George Washington University. "However, it's unlikely that crypto will be used as a substitute for commercial transactions over time," he added.


The administration has overseen the regulation of Russian crypto firms in the past. Treasury slapped a travel ban and asset freeze on SUEX and 25 affiliated cryptocurrency businesses earlier this year, blacklisting it from the dollar financial system for allegedly assisting criminal hackers in cleaning and transferring their ill-gotten gains. It was the first time that such a distinction had been made.


TRM has identified at least 340 businesses in Russia that could be potentially used as "on and off ramps" for cryptocurrency. Ari Redbord, a former Treasury senior adviser who heads government affairs with TRM say's his organization is on the lookout for any company or entity engaged primarily within Russian economic sectors which may have an interest incorporating digital currency technologies into their services -even if they don't currently offer them outright yet.


Redbord added that since the scope of the sanctions was so broad, it'd be difficult for Russia to convert the billions of dollars in fines into fiat currency.


"Whether they're using cryptocurrency or relying on China, there are mitigating actions they can take," said Ori Lev, who formerly headed enforcement at Treasury's Office of Foreign Assets Control under the Obama administration. "They can't recreate the financial system.


The Biden administration has claimed that China will not be able to compensate for the loss of US and European corporate interests, while sanctions restricting Russia's access to Western sovereign debt markets will be devastating. At the same time, the White House has made a concerted effort to argue that Beijing coming to Moscow's aid would have long-term consequences for China's reputation in Europe and around the world.


By Monday afternoon, the ruble had collapsed and Russians were lining up in ATM lines for hours as worries about inflation worsened.


"I don't know what precise measures they'll take to mitigate the bite of the sanctions, but it won't undo them," Lev added.


One potential solution for Russia is to ramp up its trade with China. Beijing has already signaled its intent to help Moscow, with Chinese Premier Li Keqiang pledging on Tuesday to "stand together with the Russian people."






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About the Blogger:


April Carson is the daughter of Billy Carson. She received her bachelor's degree in Social Sciences from Jacksonville University, where she was also on the Women's Basketball team. She now has a successful clothing company that specializes in organic baby clothes and other items. Take a look at their most popular fall fashions on bossbabymav.com


To read more of April's blogs, check out her website! She publishes new blogs on a daily basis, including the most helpful mommy advice and baby care tips! Follow on IG @bossbabymav


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