EU seeks to ban all Russian crypto transactions

The EU is seeking to ban all cryptocurrency transactions with Russia, in a bid to crack down on Moscow using assets outside the traditional banking system to evade sanctions.

The European Commission has proposed the sweeping measure instead of attempting to ban copycat Russian crypto entities spun out of already sanctioned platforms, according to a document seen by the FT. Brussels says such entities are used to facilitate trade in goods used in the Kremlin’s war against Ukraine.

“Any further listing of individual cryptoasset service providers . . . is therefore likely to result in the set-up of new ones to circumvent those listings,” reads an internal Commission document listing the proposed sanctions for EU capitals.

“In order to ensure that sanctions achieve their intended effect [the EU] prohibits to engage with any crypto asset service provider, or to make use of any platform allowing the transfer and exchange of crypto assets that is established in Russia,” it adds.

Brussels has also proposed a ban on the export of certain dual-use goods to Kyrgyzstan, alleging that companies in Kyrgyzstan have sold on prohibited goods to Russia, such as machine tools and electronics used in weapons and drones.

That ban would be the first use of anti-circumvention powers, which are the focus of the EU’s 20th package of sanctions since Russia’s invasion of Ukraine.

“Imports of common high-priority items from the EU to Kyrgyzstan have grown almost 800 per cent since the war began, while exports from the country to Russia are 1,200 per cent higher,” the document says, adding that continued trade “demonstrates a continuing and particularly high risk of circumvention”.

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Imposing the new measures requires the unanimous support of member states. Three of the bloc’s 27 countries have expressed doubts, according to three diplomats briefed on discussions. One said they wanted more information about the outreach before proceeding. 

The Commission had initially planned for the package to be agreed ahead of the fourth anniversary of Moscow’s invasion on February 24.

EU sanctions envoy David O’Sullivan is due to travel to Kyrgyzstan later this month to discuss the EU’s circumvention concerns.

“Despite multiple requests and engagements, the Kyrgyz Republic has not adopted or enforced sufficient measures,” the Commission’s document states.

The Commission’s proposal focuses on preventing the development of heirs to the Russia-linked cryptocurrency exchange Garantex, which was sanctioned by the US in 2022 for “operating as the exchange of choice for cybercriminals”.

These proposals appear to be aimed at A7, a Russian payments platform, as well as the connected rouble-pegged stablecoin A7A5.

The US, UK and EU have also previously adopted restrictive measures against the company. Last month, however, blockchain analytics company Elliptic found that the stablecoin’s aggregate volume of transactions had crossed the $100bn mark.

The commission has also proposed adding 20 banks to the list of sanctioned entities, and a ban on any transactions using the digital rouble, which is backed by the Russian central bank. 

The package also includes a full ban on services to ships carrying Russian crude oil. It would prevent companies offering insurance, maintenance and other services to tankers. 

This would in effect replace the current system of restrictions affecting only oil sold above a price cap fixed by the G7 that was designed to reduce the Kremlin’s export revenues.

Some member states have raised concerns, saying it would simply allow non-EU companies to take up the business, according to the diplomats.

There are also bans on imports from Russia of goods including steel and scrap.

Additional reporting by Paola Tamma and Henry Foy in Brussels, and Chris Cook in London