Sanctions

CoinList agrees to $1.2M settlement over apparent US sanctions violations

The crypto exchange processed 989 transactions for users in Crimea from April 2020 to May 2022, according to the Office of Foreign Assets Control.

CoinList, a United States-based cryptocurrency exchange, has agreed to a $1.2-million settlement with the Treasury’s Office of Foreign Assets Control (OFAC) following allegations the firm facilitated transactions in apparent sanctions violations.

In a Dec. 13 notice, OFAC said CoinList had processed 989 transactions for users in Crimea — the peninsula formerly a part of Ukraine currently occupied by Russia — from April 2020 to May 2022. OFAC said the apparent sanctions violations were “non-egregious” but “not voluntarily self-disclosed.”

“[CoinList’s] screening procedures failed to capture users who represented themselves as resident of a non-embargoed country but who nevertheless provided an address within Crimea,” said OFAC. “In particular, [CoinList] opened 89 accounts for customers, nearly all of whom had specified ‘Russia’ as their country of residence but all of whom provided addresses in Crimea upon account opening.”

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US senators target crypto in bill enforcing sanctions on terrorist groups

Senator Elizabeth Warren isn’t leading the charge on this bill linking crypto transactions to terrorism; it comes from Senators Mitt Romney, Mark Warner, Mike Rounds and Jack Reed.

A bipartisan group of lawmakers in the United States Senate introduced legislation aimed at countering cryptocurrency’s role in financing terrorism, explicitly citing the Oct. 7 attack by Hamas on Israel.

In a Dec. 7 announcement, Senators Mitt Romney, Mark Warner, Mike Rounds and Jack Reed said they had introduced the Terrorism Financing Prevention Act. The bill would expand U.S. sanctions to include parties funding terrorist organizations with cryptocurrency or fiat. According to Senator Romney, the legislation would allow the U.S. Treasury Department to go after “emerging threats involving digital assets” in the wake of the Oct. 7 attacks as well as actions by the terrorist group Hezbollah.

“It is critical that the Department of the Treasury has the necessary counter-terrorism tools to combat modern threats,” said Senator Rounds. “The Terrorism Financing Prevention Act takes commonsense steps toward rooting out terrorism by sanctioning foreign financial institutions and foreign digital asset companies that assist them in committing these heinous acts.”

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US REPO task force names crypto as target in efforts involving $58B in sanctioned assets

Members of the task force have worked to “counter Russian sanctions evasion,” which included illicit crypto transactions and money laundering schemes.

The United States Treasury has announced deputies of the multilateral Russian Elites, Proxies and Oligarchs (REPO) Task Force have targeted crypto in Russian entities’ attempts to evade sanctions.

In a March 9 announcement, the U.S. Treasury said the task force had blocked or frozen more than $58 billion worth of assets subject to sanctions since Russia’s military invaded Ukraine in February 2022. Members of the REPO team have worked to “counter Russian sanctions evasion,” which included illicit crypto transactions.

“As Russia’s war of aggression continues, REPO members remain determined in their commitment to impose steep costs on Russia,” said the task force. “REPO will continue to identify, locate, and freeze the assets of sanctioned Russians, with the aim of depriving the Kremlin of the funds it needs to fight its illegal war.”

Since the conflict in Ukraine began in February 2022, the U.S. Treasury’s Office of Foreign Assets Control as well as counterparts in the European Union have imposed strict sanctions against entities tied to Russia in an effort to slow down the war machine. However, according to a Chainalysis report on the one-year anniversary of the war, pro-Kremlin groups and propaganda outlets were able to use crypto transactions to raise roughly $5 million for their cause.

Related: Ukraine-based blockchain firm reports company ‘stronger’ one year into war

REPO added that assets tied to Russia under its members’ jurisdictions would remain “immobilized” until an end to the conflict. At the time of publication, there is no sign of the war abating, with large swaths of Ukrainian territory under Russian occupation and many cities in Ukraine at risk of attack.

Brit who consulted North Korea on crypto reportedly detained in Moscow

Earlier, Christopher Emms was released by Saudi authorities due to the lack of evidence against him.

The Moscow bureau of Interpol detained a British national charged by the United States Department of Justice (DoJ). The man is accused of conspiring to violate U.S. sanctions on North Korea. 

According to local media, on Feb. 21, Christopher Emms was arrested in Moscow upon the “red notice” from Interpol. Th 31-year-old British citizen was detained in the hostel where he was staying.

In April 2022, alongside Spanish national Alejandro Cao De Benos, Emms allegedly provided instructions to North Korea on how it could use blockchain and cryptocurrency to launder money and evade sanctions. The two planned and organized the 2019 Pyongyang Blockchain and Cryptocurrency Conference.

The third participant in the conspiracy is Virgil Griffith, a former Ethereum developer. He was arrested by the Federal Bureau of Investigation in November 2019, pleaded guilty, and was sentenced to 63 months in prison. Emms could face up to 20 years in prison for one count of conspiring to violate the International Emergency Economic Powers Act.

Related: North Korea stole more crypto in 2022 than any other year

Radha Stirling, the founder of Due Process International, a nongovernmental organization that helps to defend human rights in the face of international enforcement agencies, previously claimed that there was no strong evidence against Emms:

“Precisely because he did nothing wrong; he provided no information to North Korea that doesn’t already appear on the first page of Google.”

In September 2022, Saudi Arabia rejected the American extradition request for the lack of a legal basis and released Emms after an eight-month travel ban. He immediately left the country and fled to Russia. However, despite the country being targeted by the DoJ’s efforts to enforce the financial sanctions in the crypto sector, the local officials decided to help their American counterparts. 

Crypto mixer Blender has been rebranded to Sinbad, says Elliptic

Elliptic’s analysis of wallets tied to a suspected Blender operator showed $22 million going to Sinbad as well as similar “characteristics of transactions” between the mixers.

Blender, the cryptocurrency mixer sanctioned by the United States Department of the Treasury’s Office of Foreign Assets Control in May, was “highly likely” relaunched as Sinbad, according to risk management firm Elliptic.

In a Feb. 13 report, Elliptic said its analysis of Sinbad indicated that the crypto mixer was likely a rebrand of Blender as well as having “the same individual or group responsible for it.” According to the firm, Sinbad was behind the laundering of roughly $100 million in Bitcoin (BTC) for North Korea’s hacking group Lazarus.

Elliptic said that after U.S. authorities cracked down on crypto mixers — as OFAC did with Tornado Cash in August and Blender in May — Lazarus hackers used Sinbad to launder some of the funds from the $100-million attack on Horizon Bridge in January. Blockchain analysis of wallets tied to a suspected Blender operator also showed $22 million in crypto going to Sinbad and other funds sent to individuals who promoted the mixer.

“The on-chain pattern of behavior is very similar for both mixers, including the specific characteristics of transactions, and the use of other services to obfuscate their transactions,” said Elliptic. “The way in which the Sinbad mixer operates is identical to Blender in several ways, including ten-digit mixer codes, guarantee letters signed by the service address, and a maximum seven-day transaction delay.”

Source: Elliptic

Elliptic speculated that the individuals behind Sinbad may have rebranded to “gain trust from users” following Blender shutting down, adding that OFAC could consider ordering sanctions on the crypto mixer. The U.S. Treasury Department is already facing lawsuits for its sanctions on Tornado Cash.

Related: Into the storm: The murky world of cryptocurrency mixers

Lazarus has allegedly been responsible for several major attacks in the crypto space, including a $620-million hack of Axie Infinity’s Ronin Bridge in March. South Korea’s government has also imposed its own sanctions against North Korean entities tied to the theft of cryptocurrency.

US Treasury lists BTC, ETH addresses tied to Russian sanctions evasion group

The government department said it would impose “full blocking sanctions” on Jonatan Zimenkov and his crypto addresses due to his connections with a sanctions evasion network.

The Office of Foreign Assets Control of the United States Department of the Treasury has added two cryptocurrency wallets allegedly connected to a Russian sanctions evasion network as part of its list of Specially Designated Nationals.

In a Feb. 1 announcement, OFAC said it had added one Bitcoin (BTC) address and one Ether (ETH) address to its list of sanctioned entities as part of a move to “methodically and intensively target sanctions evasion efforts around the globe.” Treasury said it would impose “full blocking sanctions” on 22 individuals, including Jonatan Zimenkov, a Russian national with access to at least one BTC wallet and one ETH wallet.

According to the U.S. Treasury, Jonatan is the son of arms dealer Igor Vladimirovich Zimenkov, who runs the sanctions evasion network. The group was allegedly behind supplying technology to a Russian company following the country’s invasion of Ukraine in February 2022, as well as supporting certain “sanctioned, state-owned Russian defense entities,” including Rosoboronexport and Rostec.

“Igor Zimenkov was designated pursuant to E.O. 14024 for operating or having operated in the defense and related materiel sector of the Russian Federation economy,” said OFAC. “Jonatan Zimenkov was also designated pursuant to E.O. 14024 for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, Igor Zimenkov.”

The BTC address provided by Treasury showed no balance at the time of publication. The ETH address likewise contained no tokens but showed four transactions totaling roughly 5,463 ETH in early 2022 — more than $16 million at the time.

Related: Kraken settles with US Treasury’s OFAC for ‘apparent’ sanctions violations

The U.S. Treasury seems to have stepped up efforts to include crypto wallets in its sanctions efforts. The government department effectively barred U.S. residents from using the controversial Tornado Cash mixer, an action that later prompted lawsuits from crypto advocacy groups and investors.

Crypto industry leaders ‘scared of a strong SEC’ — Senator Warren

Senator Elizabeth Warren claims the Trump Administration “gave a green light” to a cryptocurrency market full of junk tokens, rug pulls and Ponzi schemes.

United States senator and crypto skeptic Elizabeth Warren wants the Securities Exchange Commission (SEC) to “double down” on its crypto enforcement efforts, highlighting that the cryptocurrency industry is running “scared” for what’s to come next.

Warren’s comments came during an interview with the American Economic Liberties Projects on Jan. 25.

The senator opined that since Gensler was sworn in as SEC chairman in April 2021, the Commission “has made a good start” on fixing some of the problems created by the former SEC leaders under the Trump Administration.

Senator Elizabeth Warren wants Congress to deploy more authorities and resources to help the SEC crackdown on the cryptocurrency industry participants. Source: Reuters

Warren claimed that the previous SEC administration “essentially gave the green light” to open up a cryptocurrency market “full of junk tokens, unregistered securities, rug pulls, Ponzi schemes, pump and dumps, money launderings and sanctions evasions.”

But that’s now being cleaned up under Gensler’s leadership, which has industry leaders scared, according to Warren:

“It appears that the commission is still ramping up. That is why the industry is scared of a strong SEC, and that’s why it is spending millions of dollars each year lobbying to escape SEC oversight.”

The crypto critic also pointed the finger at crypto lending companies, celebrity promoters and inside traders whom she said have misled andeceived retail investors.

But Warren didn’t stop there.

The Massachusetts politician said the SEC needs to “use the full force of its regulatory powers” in order to “reign in the frauds inflicted on American consumers.”

“The SEC should double down and use its tools to enforce the rules, and where the SEC needs more cops on the beat, then Congress needs to step up with the resources and the new authorities that are needed to ensure the SEC can do its work at full strength in every corner of the crypto market.”

The senator also called on U.S. regulators in the banking and environment sectors to impose more accountability measures against some of the bigger players in the cryptocurrency industry.

“The commission has been loud and clear that crypto doesn’t get a pass for longstanding security laws that protect investors and ensure the integrity of our financial markets,” she added.

Related: Congress may be ‘ungovernable,’ but US could see crypto legislation in 2023

However, not all U.S. senators appear to have put Gensler’s SEC on the same pedestal.

New York Senator Ritchie Torres asked the U.S. Government Accountability Office on Dec. 6 to conduct an investigation into the SEC’s failure to examine and expose FTX’s alleged fraud months before the cryptocurrency exchange collapsed:

“One cannot have it both ways, asserting authority while avoiding accountability.”

A few days later, on Dec. 10, Minnesota Senator Tom Emmer slammed the SEC and Gensler for his flawed “crypto information-gathering efforts” following FTX’s meltdown, saying that he should have to explain the cost of his “regulatory failures” to Congress.

Bitzlato kept a low profile, but did not go entirely unnoticed before DOJ action

The Hong Kong crypto exchange with strong ties to Russia was a blip on Chainalysis’ radar last year, with its takedown seen as anticlimactic by many in the crypto community.

Noncustodial peer-to-peer crypto exchange Bitzlato was little known to some before the United States Department of Justice (DOJ) enforcement action against it on Jan. 18. It was co-founded in 2016 by recently arrested Russian national Anatoly Legkodymov.

According to a Russian source, Legkodymov is the owner of 73.4% of Bitzlato, which has an office on a high floor in the Federation Tower skyscraper in Moscow, where it accepted trades of $100,000 or more. Legkodymov and his main partner in Bitzlato are also reportedly involved in Russian crypto mining equipment distribution company A-HVT.

Legkodymov had a long and checkered history in the crypto industry going back more than a decade. His earliest post on the BitcoinTalk forum dates back to 2011, where he described the events that led to a loss of more than 50 BTC:

Source: BitcoinTalk

Legkodymov described the process of opening the Bitzlato exchange in an online forum in 2017:

“My team and I have analyzed numerous failure scenarios, including a simulation of a hacker attack by the exchange owners and operators, and we found a solution that allows us to operate a bitcoin exchange in a highly secure manner.” 

While Bitzlato attracted little attention until the DOJ action on Jan. 18, Chainalysis stated in a report last February that the exchange had “received $206 million from darknet markets, $224.5 million from scams, and $9 million from ransomware attackers.”

Illicit and risky transactions made up 48% of the company’s business at that time, according to the report.

Related: US sanctions Russia’s largest darknet market and crypto exchange Garantex

The DoJ had announced it would be holding a conference to discuss the charges early in the day, but did not indicate which companies would be involved. This led many, who were speculating about the involvement of much larger names, to react with a certain amount of irony:

One lawyer commenting online called the action against Bitzlato “the blueprint for future actions, possibly even the one highly anticipated today.”

Others saw darker forces at work in taking down this darknet actor:

Bitzlato itself was clearly unsuspecting of the action about to overtake it. It tweeted the morning’s exchange rates to its 1,488 followers on Jan. 18.


Illicit crypto transactions reached all-time highs in 2022: Report

The abnormal number of illicit transactions is caused by the equally record-breaking scale of international sanctions.

2022 set the record in illicit on-chain transactions, setting aside the criminal investigations of failed crypto businesses like FTX, Celsius, Three Arrows Capital, Terraform Labs and others. According to a Jan. 12 report from Chainalysis, the total cryptocurrency value received by illicit addresses reached $20.1 billion last year.

The numbers aren’t final, as the measure of illicit transaction volume grows over time as the analysts identify new addresses associated with criminal activity. Moreover, it doesn’t include proceeds from non-crypto native crimes like drug trafficking and the funds on the balance of the above-mentioned failed companies, which are now under investigation in various jurisdictions around the globe.

At this point, the total value of $20.1 billion slightly exceeds the same measure in 2021 ($18 billion) by 10%. However, it still represents an all-time record and significantly (by 60%) transcends the 2020 marker, which stands at $8 billion.

Such numbers can be explained by the fact that 44% of 2022’s illicit transactions account for sanctioned entities: Last year, the United States Office of Foreign Assets Control (OFAC) launched some of its “most ambitious and difficult-to-enforce” crypto sanctions. Sanctions-related transaction volumes rose so drastically that they couldn’t even be included on the graphs due to scale issues. Chainalysis evaluates this growth at the 10% million mark.

Related: Sanctions couldn’t ‘pull the plug’ on Tornado Cash: Chainalysis

The report cites an example of crypto exchange Garantex. The Russian platform continued to operate while being listed on the OFAC sanctions register in April, and it hosted the majority of sanctions-related transaction volume in 2022.

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As Eric Jardine, cybercrimes research lead at Chainalysis, explained to Cointelegraph that the report counts wallets as “illicit” when they are part of a known illicit entity, such as a darknet market or sanctioned platform. Personal or unhosted wallets may be tagged as illicit if they are holding funds stolen in a hack. However:

“If a personal/unhosted wallet sent money to Tornado Cash after its designation, that wallet would not be tagged as illicit for that activity, but the transaction volume would be considered ‘illicit’ because it involves funds received by an illicit entity.”

In early January, the United Kingdom’s National Cyber Crime Unit launched a cryptocurrency unit to investigate U.K. cyber incidents involving the use of cryptocurrencies. This move aims to increase enforcement focus on crypto assets in the country amid the government’s call to eliminate “dirty money” in the country.

Russia to begin work on CBDC settlement system in Q1 as sanctions endure: Report

The country’s central bank will begin studying two possible cross-border CBDC settlement models this quarter.

Russia’s central bank is reportedly set to begin developing a cross-border settlement system using a central bank digital currency (CBDC) amid ongoing sanctions in response to its invasion of Ukraine.

The plans to move forward with Russia’s digital ruble are expected to come in the first quarter of 2023 and will see Russia’s central bank study two possible cross-border settlement models, according to a Jan. 9 report by local media outlet Kommersant.

The first proposed model sees various countries entering into separate bilateral agreements with Russia to integrate their CBDC systems.

Each agreement would be made to ensure the conversion and transfer of assets between the countries are in accordance with the rules of the agreements.

The second, more complicated model proposes a single hub-like platform for Russia to interact with other countries, sharing common protocols and standards to facilitate payments between the connected countries.

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Roman Prokhorov, the head of the board of the Financial Innovations Association (AFI) opined that the first model was more simple to implement but less promising for bilateral interactions between countries.

The other option was more “advanced” and he considered an initial two-way system may be implemented, with China as the most likely partner given its “technological and political readiness.”

Reports in September claimed that Russia was planning to use its digital ruble for settlements with China by sometime in 2023.

Still, others believe Russia’s CBDC play won’t be hamstrung by technology, but rather by politics.

The vice president of the Association of Banks of Russia, Alexey Voylukov, said that introducing a digital ruble won’t change or improve Russia’s global political situation, and trials for the CBDC platform can only be undertaken with countries that are friendly withthe Russian government and technologically ready.

Related: Crypto regulation world: How laws for digital assets changed in 2022

Previously, the Bank of Russia said it was looking to roll out its digital ruble by 2024, with all banks and credit institutions connected to the CBDC’s platform.

Russia has faced mounting financial and trade sanctions since its escalation of the Russo-Ukrainian war when it launched a full-scale invasion of Ukraine in late February 2022.

It’s since tried and pondered ways to skirt the sanctions, such as the central bank considering the use of cryptocurrencies in the country “only to support foreign trade.”

The Bank of Russia and the Ministry of Finance came to an agreement in September on a rule allowing Russians to send cross-border payments using crypto.