The U.S. DoJ to Police Russian Sanctions with KleptoCapture Task Force

Key Insights:

• The Department of Justice launches a KleptoCapture task force to target Russian attempts at evading sanctions.
• There will likely be increased crypto scrutiny as governments look for any sanction breaches.
• EU ministers are also in the process of putting together a framework to target Russian attempts to circumvent sanctions.

The EU and the U.S have been introducing hefty sanctions on Russia for the invasion of Ukraine. Governments are now looking to ensure that the Russian government and Putin allies cannot circumvent the sanctions.

With the EU barring seven Russian banks from SWIFT and Russian politicians and Oligarchs added to sanction lists, frozen assets have placed a greater focus on cryptos.

KleptoCapture Task Force Takes Aim at Cryptos

This week, the United States Justice Department (DoJ) announced the launch of the KleptoCapture taskforce. KleptoCapture is an interagency task force established to enforce “the sweeping sanctions, export restrictions, and economic countermeasures that the United States has imposed, along with allies and partners.”

The goal is to isolate Russia and cripple Russia for the invasion of Ukraine. In addition, the task force will “target the crimes of Russian officials, government-aligned elites, and those who aid or conceal their unlawful conduct.”

As part of the mandate, the task force will seize the assets of entities and individuals in violation of the sanctions. Data analytics, cryptocurrency tracing, foreign intelligence sources, in addition to information from regulators and private sector partners, will form part of the investigative process.

KleptoCapture Mandate Touches Crypto Exchanges and the Crypto Market

The Justice Department’s reference to cryptocurrency tracing throws crypto exchanges into the mix. Crypto exchanges will face increased scrutiny after refusing to impose blanket bans on Russian users. In addition, Europe and the U.S have raised concerns over the possible use of cryptos to evade sanctions.

Last week, ECB President Lagarde addressed media questions on Russia using cryptos to evade sanctions. The ECB President ended her speech by saying: “It’s all very well to be in cryptos, but that’s not it. You have to move from cryptos to stablecoins (such as USDT) to eventually fiat currencies. Now there are ways, whether DLT or not, to actually pierce that veil and to make sure that criminal activity is actually pursued and properly dealt with.”

With the EU’s MiCA currently in the works, the EU and G7 are also reportedly looking to block Russia from evading sanctions through the crypto market.

Illicit activity across the digital asset footprint soared in 2021, with Russian entities leading the way in gaining crypto by illegal means. Digital assets have been a lucrative source of funds for illicit activities.

As a result, the Israeli government has targeted crypto accounts and wallets. This week, Israeli authorities seized 30 crypto wallets linked to 12 accounts owned by Hamas-linked Al Mutahadun. Hamas had used the wallets to access Bitcoin (BTC) and altcoins.

At present, many crypto exchanges fall short of KYC and AML robustness seen in financial institutions. Evasive moves by Russians to circumvent sanctions leave crypto exchanges at risk of unwittingly violating sanctions. A finding by the KleptoCapture task force of such activity will likely have irreversible consequences.