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Currency Wars: Repressive Regimes Turned Crypto-Criminals


Bitcoin was first mentioned in a research paper from late 2008 as a form of money that would be untraceable and free from interference by governments and central banks. Anyone with a computer can buy and sell bitcoin and transactions are instantaneous, which has attracted attention from a variety of sectors, from international development to dictatorships. Block chain keeps track of all these transactions in the form of a public ledger—in order to protect against fraud—but the currency itself is not tied to any one institution in the way that the dollar is tied to the U.S. Federal Reserve Bank, the Pound Sterling tied to the Bank of England, the Yen tied to Bank of Japan, and so on. Like any tool, cryptocurrencies, or digital currencies that are collectively “mined” and not regulated by any government, have the potential to be very useful in some sectors, and very damaging in others. Countries like Russia and North Korea may be using cryptocurrencies to get around UN sanctions, relying on the very aspects of the currencies that make them appealing to fintech innovators and libertarians alike in order to dodge regulators. There is likely little that can be done at this stage: cryptocurrencies are, by design, anonymous and difficult to track, and regimes that are using bitcoin and other digital currencies to evade sanctions are unlikely to adhere to any other regulations on their usage.

Image courtesy of MichaelWuensch, © 2017.

When Satoshi Nakamoto first proposed the idea of bitcoin during the global financial crisis of 2008, it seemed to some like a godsend: a currency that was unrelated to the financiers and politicians who were seen as responsible for the economic crash. Since the early days, the number of cryptocurrencies based on the blockchain network has expanded exponentially, with over 900 currently available. These coins range in value from thousands of dollars (ex., Bitcoin) to a fraction of a penny (ex., Greencoin), and almost all are freely available for use by anyone with a smartphone and the ability to download a cryptocurrency wallet. Cryptocurrency “evangelists” see almost endless possibilities for the application of blockchain technology: cross-border payments, protection of land rights, smart appliances, digital contracts, identity protection, and much more. Governments, the very entities bitcoin was created to get around, are also finding uses for blockchain technology, if only so they are not left behind as the private sector pioneers new applications.

Perhaps the biggest government benefactors of blockchain technology, however, will be dictatorships and repressive governments. The blockchain community in Russia has been growing dramatically with the support of the Kremlin, which did an abrupt about-face on the topic in June 2017 and went from threatening to jail bitcoin users to praising the opportunities it presents; specifically, the opportunities it prevents to get around sanctions. The aspects of cryptocurrencies that make it so appealing—instantaneous and anonymous transactions, cross national borders without a problem, and difficultly in tracking the currency once it has been traded for a government-backed money—also make it ideal for money laundering. The Russian legislature is expected to put forward new regulations on cryptocurrency trading in October that will make it easier for those looking to invest in Russian projects to circumvent sanctions, while Putin has openly endorsed Ethereum as a tool that can be used to “help Russia diversify its economy beyond oil and gas.”

North Korea, too, is rumored to be using cryptocurrencies to evade foreign sanctions, though, like most things involving North Korea, it is difficult to say with any degree of certainty. It is possible that North Korea has begun mining bitcoin as a way to generate capital after the United Nations imposed harsh sanctions. It is also possible that North Korean hackers leveraged the May 2017 Wannacry ransomware attack to move bitcoin around without attracting too much suspicion on the country. Hackers may also be targeting South Korean digital currency exchanges and stealing cryptocurrency in order to build up a store of cash to help the government weather the latest round of international sanctions.

With Russia and North Korea already working on ways to implement blockchain technology to slide under the radar of UN sanctions, it seems likely that other similar regimes will soon follow suit. The Economic Commission for Latin America and the Caribbean (ECLAC), for example, recently released a report looking at blockchain technology applications in the region and warned that consumer protection and ensuring compliance with international financial guidelines will be concerns if the technology becomes more widespread. Iran, which is currently facing the threat of renewed U.S. sanctions under the Trump administration, seems another prime candidate, unless the European Union blocks the sanctions. Also, non-state organizations like ISIS are also suspected of using cryptocurrencies to raise funds that support terrorist activities.

At this stage, there is very little that can be done to prevent more widespread use of cryptocurrencies by rogue regimes. The technology is readily available, and removing elements that support money laundering—anonymity, instant transfers across borders, the difficulty of tracking users—would, if even possible, damage the very foundation of cryptocurrencies. Furthermore, regimes and non-state actors that are actively looking for ways to get around international sanctions are unlikely to adhere to any new regulations surrounding the use of cryptocurrencies. Sanctions are a popular foreign policy tool, but skeptics have been arguing for years that they are not effective, or at least cannot be definitely labeled as the reason why a particular country has opened to negotiations or accepted a deal. The availability of cryptocurrencies, which seem almost tailor-made to evade sanctions, could encourage governments to finally look more at other methods to deal with international conflict.

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