The pressure was rising but it may dissipate entirely now — after an initial period of resisting, Coinbase (COIN) has finally announced that it has blocked 25,000 accounts belonging to Russian individuals and entities for illicit activity.
This lessening of an international spotlight is what Coinbase, which has just made an unexpected and unprecedented move, can only hope for now.
This gesture will undoubtedly earn the company criticism from the crypto space, an industry that rejects any discrimination whatsoever and advocates inclusion regardless of social origin, country and nationality.
But Coinbase suspected that it would be difficult for it to please everyone. The platform for buying and selling bitcoin and other cryptocurrencies has finally cut the pear in half.
Global Pressure Had Been Mounting For Days
It has faced particular pressure from both American and Ukrainian authorities, who asked it to block accounts belonging to Russians, particularly those under the sanctions imposed by the United States, the European Union, the United Kingdom and their allies following the invasion of Ukraine by Russian forces.
Faced with this financial strangulation, many experts say, the ultra-rich Russians and their families will transfer their assets to crypto to circumvent the sanctions.
That’s because the restrictions do not currently affect digital currencies, which are in essence beyond the reach of the authorities until and unless they are converted to dollars or other main fiat currencies.
That could all change at the end of the week, however, when the Biden administration is set to release new guidelines on regulating and overseeing cryptocurrencies.
It may also use similar sanctions to the ones it have slapped on North Korea and Iran into the sanction lists now facing Russia’s elite.
Thousands of Accounts Blocked
“Through advanced blockchain analysis, we proactively identified over 1,200 additional addresses potentially associated with the sanctioned individual, which we added to our internal blocklist,” wrote in a blog post Paul Grewal, chief legal officer.
“Today, Coinbase blocks over 25,000 addresses related to Russian individuals or entities we believe to be engaging in illicit activity, many of which we have identified through our own proactive investigations.”
“Once we identified these addresses, we shared them with the government to further support sanctions enforcement.”
Coinbase does not provide the names of individuals or entities whose accounts have been blocked.
Damage Control is in Full Gear
Aware that this decision will have significant repercussions, Coinbase is launching a plea to justify its action.
The company tries in particular to downplay the blockage, which it places in the classic case of its internal policy and also of its security systems.
“Coinbase maintains a sophisticated blockchain analytics program to identify high-risk behavior, study emerging threats, and develop new mitigations,” Grewal said.
“For example, we have methods for identifying accounts held by sanctioned individuals outside of Coinbase, even if we don’t have direct access to their personal information.”
There is no doubt that this argument and this example are intended for the authorities and personalities, including former Secretary of State Hillary Clinton, who have strongly criticized the enterprise of avoiding financial strangulation in Russia.
“When the United States sanctioned a Russian national in 2020, it specifically listed three associated blockchain addresses,” the executive argued.
“Through advanced blockchain analysis, we proactively identified over 1,200 additional addresses potentially associated with the sanctioned individual, which we added to our internal blocklist. This is just one example.”
The platform then turned to the crypto sphere, developing an argument it hopes will mitigate criticism from its peers.
And nothing better than serving the widely shared idea that money laundering is done more through traditional currencies such as the dollar or the euro.
“Ordinary fiat currency laundered through traditional financial institutions remains one of the most common mechanisms for sanctions evasion and money laundering,” Grewal wrote.
“By transacting through shell companies, incorporating in known tax havens, and leveraging opaque ownership structures, bad actors continue to use fiat currency to obscure the movement of funds.”
“In this way, they leave complex financial trails that are difficult to trace, requiring investigators to separately request information from many different financial institutions, and follow a trail across multiple countries (some of which refuse to cooperate or take years to produce records).”
The question now is whether this balancing act will convince both regulators and the crypto space.
The pressure will also shift to competing platforms like Binance, FTX.com, Crypto.com, Gemini and others. It should be noted that these firms have for the moment made it known that they have tools in place to detect illicit activities.
But they refused to proactively block accounts belonging to Russian individuals or entities.
“In times of crisis, blockchain and cryptocurrency will always have one purpose to serve. The people,” posted on Twitter Binance, the largest crypto exchange by volume, on Monday.