US Treasury’s OFAC sanctions Russia-based crypto exchanges and fintech’s for facilitating sanctions evasion

Today, Treasury’s U.S. Office of Foreign Assets Control (OFAC) announced sanctions on Russian companies and individuals for supporting sanctions evasion by either facilitating transactions in virtual assets or offering services to help sanctioned entities evade sanctions.

“Russia is increasingly turning to alternative payment mechanisms to circumvent U.S. sanctions and continue to fund its war against Ukraine,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson. “As the Kremlin seeks to leverage entities in the financial technology space, Treasury will continue to expose and disrupt the companies that seek to help sanctioned Russian financial institutions reconnect to the global financial system.”

Today’s sanctions essentially target two main areas – Russia-based cryptocurrency exchanges that facilitate money laundering and Russian fintechs that provide services to sanctioned Russian banks.

OFAC sanctions Russia-based cryptocurrency exchanges 

This designation includes Bitpapa, a cryptocurrency exchange offering services to Russian nationals and NetEx24, a Moscow-based company operating a cryptocurrency exchange and other Russian entities. Both Bitpapa and NetEx24 have facilitated millions of dollars worth of transactions for OFAC-designated entities and were previously labeled as high risk exchanges in TRM.

Bitpapa operates as a typical cryptocurrency exchange, which offers custody solutions and hosts its own peer-to-peer marketplace. To date, it has conducted transactions worth millions of dollars with OFAC-designated Russian entities Hydra Market and Garantex.

NetEx24 is a non-custodial exchange primarily allowing fiat-to-crypto and crypto-to-fiat transactions. Both services operate, not just through web domains but also through the use of Telegram bots that allow the exchange of crypto without anti-money laundering and know-your-customer controls making them popular to illicit actors.

OFAC sanctions Russia-based fintechs

OFAC also sanctioned Moscow-based fintechs B-Crypto, Masterchain, Laitkhaus and Atomaiz and others for providing services to sanctioned Russian banks. For example, according to OFAC, B-Crypto partnered with OFAC-designated Rosbank to facilitate cross-border settlements for Russian exporters using virtual currencies and Masterchain and Laitkhaus have worked with the Central Bank of Russia, Sberbank and other sanctioned Russian banks to issue blockchain-based tokens that confer digital rights.

Atomaiz, according to OFAC, has partnered with OFAC-designated Rosbank and Sovcombank,  to tokenize precious metals and diamonds for Russian companies.

Today’s designation, which targets individuals and entities that are used to facilitate transactions that help sanctioned Russian banks evade sanctions, builds upon OFAC’s massive February 23, 2024 action that sanctioned 300 individuals and entities in order to deny Russia the resources necessary to support its war against Ukraine. While OFAC has targeted non-compliant Russian exchanges in the past – for example, Suex, Chatex, Garantex – for facilitating ransomware payments, sanctions evasion and other illicit activity, today’s sanctions against Russian fintechs for providing services to Russian banks is novel. Today’s fintech designations directly target the ability of sanctioned Russian financial institutions to build the blockchain-based payment rails they need to evade sanctions. In the wake of mounting sanctions, Russian financial institutions will continue to look to alternative payments. We will likely see a continued focus from OFAC on Russia’s use of crypto and other alternative payment rails.