Coinbase responded to criticism of its refusal to ban all Russia-based users by bragging about its current measures, which have already frozen more than 25,000 local crypto addresses over suspected links to illegal activity.
During a late February appearance on MSNBC’s Rachel Maddow Show, former presidential candidate Hillary Clinton laid into crypto exchanges like Coinbase, Binance, and Kraken, which have so far avoided pulling out of the Russian market.
“I was disappointed to see that some of the so-called crypto exchanges, not all of them, but some of them are refusing to end transactions with Russia for some philosophy of libertarianism or whatever,” said Clinton (via Reason).
“Everybody … should do as much as possible to isolate Russian economic activity right now.”
Coinbase chief exec Brian Armstrong last Friday downplayed the threat posed by Russia-based crypto traders using digital assets to skirt sanctions.
Armstrong claimed that open blockchain ledgers render crypto flows more traceable than US cash, “art, gold, or other assets.”
This means Coinbase supposedly doesn’t believe “there’s a high risk of Russian oligarchs using crypto to avoid sanctions.”
But by Monday, Coinbase’s chief legal officer Paul Grewal had published a blog post titled Using Crypto Tech to Promote Sanctions Compliance.
Indeed, Coinbase has seen fit to signal just how seriously it takes sanctioning undesirables. According to its marketing materials, the Delware-headquartered exchange:
- Checks all applications against a list of shady individuals or organizations and nixes the red flags. It also says it uses geofence tech to exclude IP addresses from countries sanctioned by the US Treasury.
- Screens for accounts that were opened by users already sanctioned. This, it says, finds those seeking to hide their identities.
- Leverages “sophisiticated” blockchain analysis tools (like Chainalysis) to flag high-risk behavior, even relating to individuals not using Coinbase.
Grewal reminded the world that it already had in place a “multi-layered, global sanctions program” designed to root out and flag sanctioned individuals and entities.
Coinbase says it identifies and bans crypto addresses through its own proactive investigations. The company then shares that information with the US government to help enforcement efforts.
Coinbase has so far blocked 25,000 Russian-based crypto addresses under this program, well before Russia invaded Ukraine this year.
“Sanctions play a vital role in promoting national security and deterring unlawful aggression, and Coinbase fully supports these efforts by government authorities,” said Coinbase in its post.
“No compliance program is perfect, including ours. But to play our part in these critical economic sanctions, Coinbase implements a multi-layered, global sanctions program.”
Coinbase says Russia has too much cash to secretly convert to crypto
Grewal made the case that crypto actually deters sanction evasion, regardless of its framework. It’s the fiat ecosystem that allows for money laundering, not crypto, is the claim.
“By transacting through shell companies, incorporating in known tax havens, and leveraging opaque ownership structures, bad actors continue to use fiat currency to obscure the movement of funds,” wrote Grewal.
“By contrast, digital asset transactions are traceable, permanent, and public. As a result, digital assets can actually enhance our ability to detect and deter evasion compared to the traditional financial system.”
Grewal pointed out that Moscow’s rumored $630 billion reserves exceeds the market cap of all but one cryptocurrency (Bitcoin).
This means it would require anybody attempting to avoid sanctions to make “massive purchases that would be prohibitively expensive and detectable.”
In any case, Armstrong attempted to make “Coinbase” and “crypto” interchangeable when he claimed that a ban would hurt “ordinary Russians using crypto as a lifeline now that their currency has collapsed.”
Neither Coinbase or Armstrong went deep on the plight of Ukrainians in their public statements.
After defending its decision not to ban Russian IPs, Armstrong tweeted at the very end of his thread: “We’ll also of course keep working to enable crypto services for the people of Ukraine who are in need of help.”
Frankly, Coinbase is pretending it offers a vital, decentralized service akin to Bitcoin: one that cannot be forced to adhere to economic sanctions no matter their justification. This is obviously not true.
Coinbase already bans users from a litany of sanctioned countries, including Cuba, Iran, North Korea, Sudan, and Syria.
In fact, Coinbase’s own user agreement restricts users from countries “subject to [US] embargo, UN sanctions, the European Union or HM Treasury’s financial sanctions regimes.”
It would be difficult to argue that Russia isn’t one of those countries, proving that Coinbase has decided to go against its own policies which it so sorely wants to advertise.
Not to mention, in his blog post Grewal strangely referred to Crimea, which Russia annexed from Ukraine in 2014, as “sanctioned geography.” This implies that anyone with an IP address from that area would be banned automatically.
But Coinbase’s recognition of Crimea as a region outside of Ukraine — going against a resolution signed by most United Nations countries — calls the company’s credibility on sanction enforcement (and geopolitics) into question.
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