Global financial telecommunications network SWIFT, led by the West, is making efforts to help banks worldwide identify transactions using cryptocurrencies to evade sanctions. They have particularly stepped up monitoring of transactions between China and Russia.
According to a report by Asia Times on May 9th, Tom Zschach, Chief Innovation Officer of SWIFT, mentioned at the London Digital Assets Summit hosted by the Financial Times on May 6th that SWIFT has integrated multiple control measures to ensure compliant transactions.
Zschach introduced that SWIFT provides Customer Security Program (CSP) and Customer Security Control Framework (CSCF) to assist financial institutions in monitoring suspicious transactions.
A report by Reuters in March revealed that Russia used cryptocurrencies such as Bitcoin, Ethereum, and USDT in approximately $192 billion worth of oil trade with China and India, successfully bypassing sanctions.
Cryptocurrency transactions can evade the SWIFT system, making them effective tools for money laundering and circumventing sanctions. Stablecoins, particularly, are favored for sanction avoidance due to their peg to the U.S. dollar and support for instant settlement.
Unlike traditional cryptocurrencies such as Bitcoin, which are time-consuming and volatile due to mining, stablecoins offer flexibility and easy cross-border transactions.
A report by the Brookings Institution previously warned that stablecoins could become tools for terrorist financing, and techniques for evading sanctions are becoming increasingly complex.
After Russia’s invasion of Ukraine in February 2022, the U.S., EU, UK, and Canada removed seven Russian banks from SWIFT. Subsequently, Beijing attempted to continue trade with Moscow using RMB settlements, but this pathway was obstructed by secondary sanctions imposed by the U.S.
As a result, Russia and China turned to more complex settlement methods. For instance, Moscow used gold, precious metals, or gems to pay for electronic components imported from China, then converted to dollars in the Middle East. Hong Kong became a financial hub for such transactions.
In 2024, the U.S. Department of the Treasury sanctioned numerous companies in Hong Kong and China to curb sanction evasion and threatened to sanction small banks in China.
On March 19th, the Moscow Times reported that Russia has turned to cryptocurrencies to cope with sanctions as the ruble’s trading is restricted.
The Kyiv Independent reported on March 14th, citing Reuters, that Russia, China, and India have used cryptocurrencies in oil trades, and the speed and flexibility of settlements make cryptocurrencies likely to be continually used by Moscow.
On January 23rd, President Trump signed an executive order to encourage the development of blockchain and digital assets in the U.S.
Steve Lee, co-founder of Neoclassic Capital, a risk investment firm related to internet and digital assets, revealed that Japan plans to reduce the tax rate on cryptocurrency gains from 55% to 20%.
South Korean institutions may start cryptocurrency trading by the end of the year. Singapore is also easing regulations to attract global trading platforms such as Robinhood Crypto.
These exchanges could potentially serve as channels for Russia and China to circumvent sanctions.
In September 2024, Russia opened cryptocurrency exchanges in Moscow and St. Petersburg to support foreign trade.
Previously, the U.S. Office of Foreign Assets Control (OFAC) repeatedly sanctioned companies and exchanges in Russia, North Korea, and Venezuela for suspicious cryptocurrency activities. However, such activities persist.
In November 2024, the UK Financial Conduct Authority released a roadmap for regulating cryptocurrency trading and plans to finalize stablecoin and exchange rules by 2026.
Whether SWIFT’s enhanced monitoring measures can effectively curb the use of cryptocurrencies to evade sanctions will depend on global regulatory coordination.
Zschach stated that his main responsibility is to drive innovation at SWIFT, collaborate with the SWIFT community and partners to prevent fragmentation of the international payment market due to the rise of cryptocurrencies.
Amid a waning trend of globalization, geopolitics impacts many areas, including payments, as emphasized by Zschach. Digital currency transactions can create disconnected “digital islands,” forming separate networks that fragment payment systems, which is detrimental to regulation.
Zschach pointed out that SWIFT will continue to innovate to ensure global interconnectedness and compliant transactions in response to the challenges posed by the current geopolitical landscape.