Digital currencies and economic sanctions: the increasing risk of sanction evasion
| DOI | https://doi.org/10.1108/JFC-07-2021-0158 |
| Published date | 20 September 2021 |
| Date | 20 September 2021 |
| Pages | 1269-1282 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Christoph Wronka |
Digital currencies and economic
sanctions: the increasing risk
of sanction evasion
Christoph Wronka
Deloitte GmbH Wirtschaftsprufungsgesellschaft, Hamburg, Germany
Abstract
Purpose –The purpose of this paper is to discuss the effect of the issuance, adoption and use of digital
currencies on economic sanctions with the focus being on the increasing risk of sanction evasion. The
research soughtto answer three key questions: What is the effect of digital currencieson economic sanctions?
To what extent does the adoption and use of digital currencies increasethe risk of sanction evasion? What
remedial measures can be taken to enforcecompliance with sanctions in the wake of increased adoption and
use of digital currencies?
Design/methodology/approach –The research relied on secondary sources of data, using secondary
research to collect archival data in the form of documents. Content and thematic analyses were used to
synthesisethe collected data.
Findings –It was found that digital currencies have significantly increased therisk of sanction evasion.
This is because they facilitate the anonymous or pseudonymous conduct of international commercial
transactions,which are hard or impossible to detect and track.
Originality/value –This research is the first to explore the differentways in which digital currencies as
whole –and not just cryptocurrencies–affect compliance with economic sanctions.
Keywords Financial crime, Digital currencies, Economic sanctions
Paper type Research paper
1. Introduction
1.1 Background of the problem
In its recently released and published enforcement framework on cryptocurrency
(Cryptocurrency Enforcement Framework), the US Department of Justice issued a
strongly worded warning to the effect that cryptocurrency and other digital currencies
were presenting a very troubling opportunity for rogue states and individuals across the
world to not just avoid international sanctions but also undermine the traditional or
conventional financial markets (and in doing so, negatively affecting or undermining the
interests of the USA and its allies) (Schwinger, 2021). This was followed by a spate of
government-led enforcement action on what clearly demonstrates the magnitude of the
problem of sanction evasion through the use of digital currencies. While this does not
necessarily mean that the risk of individuals, entities and states using digital currencies
to avoid or evade sanctions is imminent, it clearly demonstrates that this is a risk worth
mitigating. The USA may be doing all in its power to prevent this from happening
through its many regulatory frameworks. However, the fact that its allies are not
necessarily doing the same means that the efforts are less likely to be effective in
addressing the issue of sanction avoidance or evasion through the use of digital
currencies (Schwinger, 2021).
This partly explains why the issue of sanctions avoidance and/or evasion through the
use of digital currencies has become not just of immense interest among regulators across
Digital
currencies and
economic
sanctions
1269
Journalof Financial Crime
Vol.29 No. 4, 2022
pp. 1269-1282
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-07-2021-0158
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