Sanctions and Crypto: How Enforcement Really Works

It’s been more than sixteen years since Bitcoin (BTC +0.44%) first came into existence. Since then, the cryptocurrency sector has evolved significantly.

Today, there are hundreds of thousands of coins available, and the total market capitalization has surged past $4 trillion, though Bitcoin alone accounts for over $2 trillion of it. The sector also manages more than $100-$200 billion in daily volume.

So, the crypto industry isn’t small anymore; it has grown massively, though compared to major traditional markets and the global financial system, it’s still tiny.

Innovation and speculation have been the primary drivers of the crypto market’s growth, with more than 550 million people all over the world owning digital assets today. But that’s not all. 

Designed to be open and decentralized, which means that cryptocurrencies operate on a public, transparent blockchain network without a single authority that can control or restrict access, digital assets allow for peer-to-peer transactions.

This borderless and censorship-resistant infrastructure of the sector gives everyone around the world access to financial services and the ability to gain financial sovereignty. On the global front, cryptocurrencies allow countries to keep their operations and economies running while avoiding using the dollar, which is the preferred currency for transactions in global trade.

Much like cash, this very design of crypto, however, has also made it popular among criminals and a subject of regulatory scrutiny. 

One of the ways that has captured regulators and researchers’ attention is crypto’s use to evade sanctions, which has led to the asset’s growing inclusion in enforcement actions and new rounds of sanctions packages.

EU’s 19th Russia Sanctions: What Changes for Crypto?

On Sept. 18, 2025, the European Commission proposed another round of sanctions against Russia. For the first time, the measures would directly target crypto platforms and digital asset transactions.

As part of the EU’s proposed 19th sanctions package, cryptocurrency transactions involving Russian residents would be prohibited, and dealings with foreign banks connected to Russia’s alternative payment systems would be restricted. The proposal also aims to block transactions with entities operating in the country’s special economic zones.

The sanctions aren’t yet final, though, as they need approval from all bloc member states.

The latest measures, President of the European Commission Von der Leyen said, are in response to Russia’s “largest-scale drone and missile attacks against Ukraine,” and violating EU airspace in Poland and other countries.

These new measures come amidst reports of Russia’s deeper involvement in crypto. 

Back in March, Reuters had reported that Russia is using Bitcoin, Ether (ETH +0.57%), and USD-backed stablecoins like Tether (USDT -0.01%) in its oil trade with India and China to evade Western sanctions. While small, it is a growing part of Russia’s overall oil trade, which was worth $192 billion last year.

Russia has actually publicly encouraged the use of digital assets and even passed a law to allow crypto payments in international trade.

The local crypto exchange, Garantex, which was put under U.S. sanctions in 2022 and by the EU earlier this year, was recently taken down by the U.S. Department of Justice (DOJ). The agency also froze $26 million in crypto.

“Digital assets play a crucial role in global innovation and economic development, and the United States will not tolerate abuse of this industry to support cybercrime and sanctions evasion.”

– Under Secretary of the Treasury for Terrorism and Financial Intelligence John K. Hurley

Blockchain analytics firm Elliptic said its data and intelligence were used by the US Secret Service in their investigation into the exchange. Tether also blocked digital wallets on its platforms.

In July, the DOJ also charged a Russian national residing in New York with laundering funds through his crypto companies, Evita Pay and Evita Investments, while facilitating transactions for sanctioned Russian entities.

On the other side, Ukrainian lawmakers submitted a draft bill that would allow the National Bank of Ukraine to hold Bitcoin and other virtual assets in reserves; the measure has not been enacted, and the NBU has voiced caution about adding crypto to reserves at this stage.

Does Crypto Really Help Evade Sanctions? What the Data Shows

While crypto’s role in the ongoing military conflict in Russia and Ukraine has been widely reported, is it really the case? The question is, does evidence actually support that?

Over the years, several studies have looked into the impact of crypto in the context of military conflict. And they suggest Bitcoin’s resilience against the adverse economic effects triggered by warfare. At the same time, they have noted that crypto investors seek liquidity in response to war-related developments. 

However, there are also studies¹ that do not find Bitcoin serving² as a safe haven during military conflict. They recommended investors to favor traditional safe-haven assets, gold and USD, as they provide stronger and more stable hedging against geopolitical risk.

Bitcoin actually recorded a decline in trading volumes as the latest conflict unfolded. 

But then other studies³ have found crypto to be effective.

According to the latest paper, all these different findings just emphasize the intricate challenge of describing digital assets’ roles in times of military conflict. “Their properties appear to be contingent on market conditions and the specific phase of the conflict,” it said.

The new study explored crypto’s potential use⁴ in evading sanctions as well as supporting war efforts.

For this, it utilizes an econometric tool to assess the dynamic financial behaviors of digital assets with a focus on changes in liquidity, safe haven status, and their use in circumventing economic sanctions. 

The research findings suggest shifts in the cryptos’ role from net transmitters to net receivers of spillovers in volatility as well as returns, particularly during the financial sanctions phase. With that, the study found that cryptocurrencies can actually be used as a means to circumvent Western sanctions imposed on Russia as well as to provide aid to Ukraine.

Crypto’s Role in Mitigating Economic Isolation

Digital assets have emerged as influential factors in the dynamics of modern military conflict, which became pretty clear in the Russia-Ukraine conflict, which reveals a complex and contradictory role that crypto plays in times of geopolitical unrest.

This military conflict actually marks the first major one in which cryptocurrencies have played a prominent role. 

Cryptocurrency trading in Russia has risen significantly amidst the conflict and subsequent sanctions, which the latest report notes, indicates a growing trend among local savers to put their funds in digital assets.

Economic sanctions, after all, not only restrict people and businesses’ access to global financial markets but also increase economic isolation and diminish the value of the local currency.

The Russian Ruble has been experiencing volatility throughout the last decade, with COVID-19 crashing oil prices and the Russia-Ukraine war bringing sanctions affecting it negatively in recent years, while government actions and new trade with China and India helped it bounce back. 

Sliding USD and wartime monetary policy have also helped the Russian Ruble become the top-performing currency of 2025 relative to the greenback.

The US Dollar Index is currently dealing with the Donald Trump administration’s trade war with the world, which is affecting its reserve currency status and safe-haven appeal. Increased military spending in Russia, meanwhile, has kicked up inflation (above 8%), prompting its central bank to boost interest rates to a whopping 21%, which was cut down to 17% in recent months. These factors are contributing to ruble strength. 

As of writing, USD/RUB is trading at 83.54, recovering from the 110.5 level hit late last year but still far from the 50.5 multi-year low from mid-2022.

The negative effects of economic sanctions on local currency, economy, and access to financial services, according to the latest study, can be mitigated with the use of crypto. It said:

“Cryptocurrencies offer a strategic alternative for circumventing these restrictions grounded on their decentralization, anonymity, borderless transactions, resistance to censorship, transaction speed, accessibility, and diversification features.” 

Crypto in Wartime Serves as an Alternative Safe Haven

The interest and growing usage of digital currencies in international settlements, according to the research authors Tiago Cruz Gonçalves from Lisbon School of Economics & Management at Universidade de Lisboa and José Almeida from ISCTE Business School, position cryptos not just as alternative investments but as fundamental instruments in navigating the complexities of global economic sanctions and military conflicts.

But it’s not all straightforward, as cryptos’ properties seem to depend on market conditions as well as the phase the conflict is in at a particular time.

So, to understand crypto’s role, the researchers employed a Time-Varying Parameter Vector Autoregression (TVP-VAR) model to capture the time-varying properties of cryptos’ returns and volatilities.

According to the study, during the financial sanction period, digital assets like Bitcoin got return spillovers from Gold, which suggests “re-evaluation of what constitutes a ‘safe-haven’ in a digitally interconnected global economy.”

A cross-crypto analysis shows that, unlike other coins, which exhibit more constant roles, BTC, ETH , and XRP demonstrate higher variation from net transmitter to net receiver of spillovers of both returns and volatility.

These assets received RUB/USD spillovers, which might mean that the value of these majors is being “increasingly influenced” by the Ruble’s instability, “suggesting a possible capital flight-to-crypto.”

At the same time, data suggests a net inflow of capital from cryptocurrencies into the Ukrainian currency (UAH), which may indicate support for the Ukrainian military effort.

Cryptocurrencies aren’t just speculative assets, noted the study, adding that investors need to see these digital assets as “potential instruments for diversification and hedging during periods of geopolitical instability”, that is, while keeping in mind their volatility and sudden changes in safe-haven role. 

This evolution also calls for regulatory attention, with authors pointing out the urgency of developing flexible mechanisms to monitor and mitigate the illicit uses of cryptocurrencies, while avoiding stifling innovation. 

Moreover, the paper recommends that central banks incorporate crypto behavior into financial stability assessments. As for governments, they need to cooperate with each other and implement public policies to minimize the risk of crypto’s use to evade sanctions or finance military conflict while balancing technological innovation, financial resilience, and economic security, said the paper.

How Regulators Enforce Crypto Sanctions: OFAC, EU, FATF

As data suggests, criminal actors are turning to crypto, and with that, regulators have begun to target their use. We are seeing this happen in the EU, but the bloc is not the only one to do so. 

Even in the region, European Central Bank (ECB) president Christine Lagarde first called for a regulatory framework on crypto to prevent Russia from getting around economic sanctions back in 2022.

“Whenever there is a ban or prohibition or a mechanism in place to boycott or prohibit, there are always criminal ways that will try to circumvent the prohibition or the ban,” said Lagarde at the time. “It’s so critically important that MiCA is pushed through as quickly as possible so we have a regulatory framework within which crypto assets can actually be caught.”

The Markets in Crypto Assets (MiCA) was first introduced in Sept. 2020 and came into effect in Dec. 2024.

Existing travel rules also cover crypto-to-crypto transfers, mandating the ‘travel’ of data with the transaction as well as storage on both sides, thus preventing anonymous crypto transactions.

In the US, the DOJ and the Department of the Treasury’s Office of Foreign Assets Control (OFAC), which largely administers and enforces the country’s economic sanctions programs, have also taken steps to target the use of crypto to commit money laundering crimes and evade sanctions.

The US has sanctioned several countries, including Cuba, Iran, North Korea, Syria, and Russia, targeting a range of activities such as terrorism, corruption, and malicious cyber activities. And several of these have been exploring the benefits of digital currencies.

When it comes to Iran, it has made mining Bitcoin a national imperative, licensing several cryptocurrency mining farms. It even looked into using a domestic digital currency to “facilitate the transfer of money (to and from) anywhere in the world” and help them with the sanctions.

Besides economic sanctions, Iran’s rapidly growing cryptocurrency ecosystem has been driven by inflationary pressures and fiat devaluation. To the nation’s users and businesses, digital assets provide a practical alternative for saving, trading, and moving capital.

Meanwhile, North Korea-affiliated hackers stole $1.34 billion across 47 incidents in 2024, a 102.88% increase from the year prior, according to data from blockchain analytics firm Chainalysis. These hackers utilize advanced malware and cryptocurrency theft to fund state-sponsored operations and circumvent international sanctions. 

It was back in 2018 that OFAC first announced that it would begin listing crypto addresses linked with sanctioned actors to its Specially Designated Nationals and Blocked Persons List (SDN list). The agency’s first foray into the industry also included publicly identifying crypto addresses that financial institutions were prohibited from transacting in and took action in regard to cryptocurrency under its cyber-related sanctions authorities.

Over time, OFAC continued to list crypto addresses to its SDN list. The OFAC issued 13 designations that included crypto addresses. Recently, it also added privacy coins like Monero, Zcash, and Dash besides BTC, ETH, and Litecoin.

In July 2025, the White House also released its long-anticipated report on digital asset policy, which framed crypto as a key pillar of the future US financial system and involved a detailed chapter on countering illicit finance in the space. 

Developed by the President’s Working Group on Digital Asset Markets, along with the National Economic Council, it put emphasis on two major commitments. 

The first one is to provide regulators, law enforcement, and national security agencies with the resources, training, and blockchain intelligence tools needed to trace and disrupt illicit activity on-chain. The second is to have robust safe harbor frameworks that enable both enforcement and innovation to advance.

Blockchain Transparency Offers Unmatched Visibility

As governments extend scrutiny and controls over crypto, it has become important for service providers like exchanges and wallets to demonstrate more responsibility for managing risks.

Regulators now require crypto businesses to adhere to compliance obligations, much like traditional financial services providers do, regardless of whether the transactions are made in digital or fiat currency. This means risk assessment, internal controls, training, testing, and auditing.

But while nations are potentially using crypto to bypass sanctions that prevent them from using traditional financial systems, the transparency and traceability of the technology underlying crypto present significant hurdles.

Blockchain, after all, is an immutable record of all that goes on-chain. Everything is publicly available for anyone to check and verify.

In fact, the level of transparency and immutability that blockchain offers is simply not present in traditional finance. As Lagarde has noted in the past, “cryptocurrencies’ own blockchain technology could be used to control it.”

Moreover, blockchain analytics tools offer deeper insights into crypto usage. They allow for the analysis of millions of addresses, track fund movement, identify patterns, and uncover any illegal activities, making it very challenging for sanctioned entities to stay hidden and easy for authorities to investigate.

Blockchain analysis tool providers also constantly help governments and release reports on any illegal events. For instance, Elliptic recently posted in great detail how the wallets, services, and behavior of Nobitex, Iran’s largest crypto exchange with over 11 million users, were linked to Islamic Revolutionary Guard Corps (IRGC)-aligned financial activity. 

This reinforced the exchange’s position as “a critical piece of infrastructure within Iran’s cross-border sanctions evasion apparatus,” it said.

Conclusion 

Cryptocurrency offers a powerful tool for people all over the world, especially in regions facing inflation, capital controls, or conflict, to move funds across borders efficiently and preserve wealth. But at the same time, crypto is being utilized to circumvent government-imposed financial controls.

As a result, regulators are racing to establish frameworks that prevent misuse without curbing innovation. Here, crypto itself offers governments a way to achieve this balance. Blockchain’s transparency, immutability, and traceability allow for the monitoring of transactions, detecting illicit flows, and enforcing compliance. All the while, blockchain maintains its open, borderless character that fuels crypto innovation.

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References:

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2. Diaconaşu, D. E., Mehdian, S. M., & Stoica, O. (2022). The reaction of financial markets to Russia’s invasion of Ukraine: Evidence from gold, oil, bitcoin, and major stock markets. Applied Economics Letters, 30(19), 2792–2796. (Version of Record), published online 2022. https://doi.org/10.1080/13504851.2022.2107608
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