Coinbase states cryptos reduce possibility of sanction evasion

Coinbase also argues that the laundering fiat currencies is difficult to trace

Coinbase app on smartphone screen                                 
Coinbase says it is committed to building a safe and responsible financial system - Photo: Alamy

Coinbase, the largest cryptocurrency exchange in the US has stated that cryptos “can actually enhance” the ability to detect and deter sanction “evasion compared to the traditional financial system”.  

This is what Paul Grewal, chief legal officer at Coinbase said in a blog titled Using Crypto Tech to Promote Sanctions Compliance.

The US, UK, Canada and the European Union (EU) have all placed sanctions on Russia following its invasion of Ukraine. As well as, major Russian banks being blocked from using SWIFT, the international payment system.

Grewal outlined that Coinbase is committed to “building a safe and responsible financial system” and part of that is ensuring compliance with economic sanctions.   

As well as reinforcing Coinbase’s support of such efforts to deter unlawful aggression through sanctions by governments. Grewal states “sanctions are serious interventions, and governments are best placed to decide when, where, and how to apply them.”

The laundering of fiat currencies

Grewal explains that cryptos naturally carry traits that assist in deterring sanction evasion.

Ordinary fiat currencies as Grewal outlines, “laundered through traditional financial institutions remains one of the most common mechanisms for sanctions evasion and money laundering.”

The money laundering industry means transactions go through shell companies, in known tax havens, leverages “opaque ownership” and allows bad actors to use fiat currencies to “obscure” the movement of funds.

This results in difficult to trace financial trails and requires separately requesting information from different financial institutions and numerous countries to do so.

Cryptos are “traceable, permanent, and public”

On the other hand, crypto transactions are “traceable, permanent, and public”, Grewal argues and thus can “enhance” the ability to prevent sanction evasion in a more robust and efficient way compared to fiat currencies.

As cryptos use public blockchains, they offer visibility into “the date and time of each transaction, the type of virtual asset transacted, the amount, the wallet addresses involved, and the unique transaction identifier”.

This means any suspicious activity can be traced without the need for gathering information from multiple financial organisations, something not possible with fiat currencies.

Public blockchains also assists law enforcement in tracing “the transaction history of a wallet from the very first transaction, follow transactions in real time, and group transactions according to risk level based on interactions with other wallets.”

Coinbase gives the example of identifying 16,000 addresses possibly associated with Iranian exchanges, a large part of which had not yet been identified by others. This was then used by the crypto exchange to strengthen its compliance and then “inform law enforcement in order to enhance industry-wide awareness”.

Additionally, when transactions are recorded on the blockchain they remain there permanently. Coinbase details that “no one (not crypto companies, not governments, not even bad actors) can destroy, alter, or withhold information to evade detection.”

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