Crypto-friendly Russian laws could become a headache for the West

As Russia prepares to use cryptocurrencies in international trade to circumvent sanctions, this development creates additional counterparty risks for Western companies, blockchain analysis firm Chainalysis has warned.

Starting this September, Russia will allow local companies to use cryptocurrencies in international trade. However, the domestic ban on using crypto assets for payments remains in place. Additionally, approved firms will be permitted to mine bitcoin (BTC) and other crypto assets.

According to Chainalysis, this will increase scrutiny from US and EU authorities, particularly concerning counterparty risks and connections with Russia's trading partners, such as China and Iran.

Meanwhile, crypto exchanges, other crypto asset platforms, and companies in the traditional finance sector will need to exercise extra caution when dealing with mining entities, as these may be linked to Russia.

"Overall, these changes make dealing with Russia-based entities even more challenging for centralized exchanges, aligning with the broader trend of de-risking and de-banking Russia since its full-scale invasion of Ukraine," Chainalysis added.

Top Russian officials have publicly acknowledged that the new crypto-friendly legislation is aimed at evading international sanctions and creating an alternative payment infrastructure.

Russia is not the first country to attempt to bypass sanctions using cryptocurrencies. Venezuela, for example, has employed crypto in international oil trading, while Iran has turned to bitcoin mining to avoid sanctions.

According to another blockchain analysis firm, Elliptic, Iran has used bitcoin mining to circumvent trade embargoes, earning hundreds of millions of dollars in crypto assets that can be used to purchase imports and bypass sanctions.

However, as a neutral technology, bitcoin is also used by oppressed groups to bypass dictatorship. For instance, in a recent interview with the Human Rights Foundation, Venezuelan opposition leader María Corina Machado described bitcoin as a lifeline for Venezuelans seeking to evade government restrictions.