NEW YORK, NY - (NewMediaWire) - December 23, 2022 - (Ny Press Wire) - The topic of sanctions is one of the most keenly discussed in 2022, expert Maxim Kurbnagaleev believes. Restrictive measures may be imposed on companies, sectors of the economy or an entire country by other countries, law enforcement agencies, as well as international authorized organizations.

Economic sanctions include measures (suspension or restriction of activities, fines) that are imposed on the company because of violation of certain rules — local laws, international standards or other normative legal acts regulating this type of activity.

For instance, the Central Bank of a country may revoke the license of a commercial bank, or a plant may receive a fine from a supervisory organization for improper disposal of waste.

Such cases are described by a set of rules, violation of which leads to punishment. But what if there are no generally accepted rules? Does the activity become illegal in this case, or is it simply not regulated? Participants in cryptocurrency transactions from exchanges to ordinary users ask these questions. Maxim Kurbangaleev told us about the problems in the cryptocurrency sphere and ways to solve them.

How do sanctions work? – Maxim Kurbangaleev

Cryptocurrency, as an alternative payment method, appeared relatively recently — in 2008. At first, regulators did not pay attention to this activity, but with the rapid growth in the number of users, they had to change this position.

The principle of operation — blockchain technology — involves recording in blocks all operations ever carried out with a specific unit of cryptocurrency, as well as further copying all available information into new blocks. For security purposes, all this information is encrypted, so market participants cannot scan the entire blockchain without special tools. Previously, such tools did not exist, which is why cryptocurrency was an attractive means for money laundering.

When the volume of transactions became so noticeable to attract the attention of the regulator, blockchain analysis programs appeared (for example, Chainalysis, Coinpath, Etherscan, etc.). They check, systematize and visually present data in the cryptographic chain, so can get information about the participants of transactions. Thanks to these tools, it became possible to track transactions related to illegal activities and blocking of suspicious companies began.

Maxim Kurbangaleev: SUEX is the first crypto exchange to be sanctioned

The first case of imposing sanctions on a cryptocurrency exchange occurred in September 2021, when the Czech company SUEX was included in the sanctions list of the US Office of Foreign Assets Control (OFAC SDN List). According to the US Treasury Department, SUEX was engaged in laundering money received from fraudulent schemes.

It is also known that the blockchain scanner Chainalysis took part in the investigation of this case. It would seem that a solution to combat illegal crypto operations has been found, but our invited expert Maxim Kurbangaleev believes otherwise. According to him, this approach also affects those who have never participated in illegal schemes:

"Imagine that an ordinary user wants to buy cryptocurrency. He opens an electronic wallet, finds an exchange and purchases cryptocurrency, which goes to his account. Suddenly it turns out that 50 blocks ago, a specific unit of crypto in the user's wallet had been involved in some illegal pyramid, which law enforcement agencies found and applied the appropriate punishment to it. Because of this record in the block, the entire user's wallet receives a label, which, fortunately, does not block all the funds, but significantly limits the range of available actions. Is it fair? I'm sure it is not. Or an exchange platform gets on the sanctions list, and suddenly the entire crypto, which has transactions from this exchange in the blockchain, also becomes sanctioned. Moreover, users cannot cancel such a transfer in order to somehow protect themselves," the expert says.

Unregulated activity: outlawed or illegal? – Maxim Kurbangaleev

Cryptocurrency activity has not been legalized in all countries of the world so far. Legalization means that companies have a legal framework based on which they conduct business. But, as a rule, crypto companies operate all over the world, so it is important for them to comply with the laws of not only those jurisdictions where they are registered, but also those where they serve their customers.

At this point business faces another problem — the lack of a common legal regime. In some countries cryptocurrency is a legal means of payment on a par with the national currency, in other countries it can be used only by individuals, and elsewhere it is completely ignored by local legislation.

Maxim Kurbangaleev: "In the market there is no general understanding of how to treat cryptocurrency transactions, how to check them, whether the analysis will be enough for an operation in another country, and whether the transaction will not fall into the list of suspicious ones. At the same time, most countries do not impose a direct ban on cryptocurrencies. It is a paradox, but this is how the market works today. In countries where there is no special crypto regulation, the authorities can control transactions at their discretion, applying criteria from related fields. Believe me, it is impossible to predict what measures should be taken by an exchange platform or an exchange in each specific case."

KYC – customer verification

Today the majority of crypto companies have come to a common opinion with regard to running their businesses. For example, conducting a customer identification procedure (KYC — "Know your customer").