A Blog by Jonathan Low

 

Apr 22, 2022

US Sanctions Bitcoin Miner 'Bitriver' To Prevent Russian Sanctions Evasion

The US is demonstrating how serious it intends to damage the Russian economy by identifying and then sanctioning any company it believes is assisting Russia in evading global economic pressure as a result of its Ukraine invasion. 

Cryptocurrency is an obvious target for such an effort but this is the first company sanctioned in that industry. JL 

Weilun Soon reports in Business Insider, image Andrey Rudakov, Bloomberg:

The US is adding a cryptocurrency-mining company to its list of sanctions against Russia in an attempt to block avenues of funding for its invasion of Ukraine. Founded in 2017 by Russian businessman Igor Runets, Bitriver offers crypto mining hosting services and is headquartered in Zug, Switzerland. It was previously headquartered in Moscow, and has 200 staff across three Russian offices. Cryptocurrency mining "allows countries to monetize energy resources which cannot be exported due to sanctions." It's the first time the US is targeting a virtual currency mining company.

The US is adding a cryptocurrency-mining company to its list of sanctions against Russia in an attempt to block avenues of funding for its invasion of Ukraine.

The US Treasury said Wednesday it's lobbing a fresh round of sanctions at some 40 Russian entities and individuals, including bitcoin-mining firm Bitriver and 10 of its subsidiaries in Russia.

It's the first time the US is targeting a virtual currency mining company, the Treasury said.

Founded in 2017 by Russian businessman Igor Runets, Bitriver offers up crypto mining hosting services and is currently headquartered in Zug, Switzerland. It was previously headquartered in Moscow, according to its website, and has more than 200 staff across three Russian offices as well as other markets. 

Runets told Insider the company "has never provided services to Russian government institutions and has not worked with customers already targeted by Washington's sanctions."

He said the crypto-mining industry in Russia is developing steadily. "The actions of the US Treasury are therefore dictated by competitive considerations in favor of US business," he said.

Western countries have imposed sweeping sanctions on Russia since the start of its invasion of Ukraine, targeting the country's largest financial institutions, tech companies, Russian President Vladimir Putin, and many of his cronies. The US has banned the import of Russian oil and energy, cutting off one route for financing the war.

With Wednesday's list, the US wants to cut off Russia's ability to monetize that energy in other ways.

The Treasury described Russia's crypto-mining industry as the third-biggest in the world, a statistic that likely stems from Cambridge University analysis, which puts US and Kazakhstan at a larger share. China banned crypto mining in 2021.

Cryptocurrency mining can "allow countries to monetize energy resources, some of which cannot be exported due to sanctions," the International Monetary Fund said in a recent report, adding that the risk is fairly contained for now. Global monthly revenue from bitcoin mining last year was about $1.4 billion on average, with Russia accounting for about 11%, the report noted.

Cryptocurrency miners operate the computing systems that underpin, for example, the bitcoin network. They go through an energy-intensive process to solve mathematical puzzles. The first to figure these puzzles out are rewarded with cryptocurrency. Farms like Bitriver host such miners at scale, buying electricity at cheaper wholesale prices.

The Treasury said that Russia has an advantage in cheap energy resources and a cold climate, which makes it cheaper for companies elsewhere to mine crypto from Russia. This in turn injects foreign funds into Russia's economy.

"The United States is committed to ensuring that no asset, no matter how complex, becomes a mechanism for the Putin regime to offset the impact of sanctions," the Treasury said.

Cryptocurrencies are thought to have supported terrorist financing or money laundering.

In 2019, North Korea was accused by the UN of raising $2 billion, partially through raiding cryptocurrency exchanges, to fund its weapons of mass destruction programs. Its government denied the allegations. And a 2021 analysis by blockchain analytics firm Elliptic found that Iran could skirt sanctions by raising up to $1 billion annually through bitcoin mining, Reuters reported.

Aside from Bitriver, the Treasury's latest list of sanction targets includes Transkapitalbank, a Russian privately-owned commercial bank, and companies related to Russian oligarch Konstantin Malofeyev.

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