The US Financial Crimes Enforcement Network (FinCEN) has warned that cryptocurrencies could be used by Russian oligarchs to sidestep punitive sanctions imposed by the US and its allies over the war in Ukraine. However, market stakeholders believe bitcoin is hardly the best way to dodge sanctions.

FinCEN has issued a warning to all financial institutions to be on the lookout for signs that sanctioned Russian individuals and entities are attempting to transfer their assets out of Russia. With financial institutions, the financial markets watchdog refers to depository institutions, insurers, money services businesses, mortgage brokers, the precious metals and jewelry industry, casinos, and securities and futures operators.

“In the face of mounting economic pressure on Russia, it is vitally important for US financial institutions to be vigilant about potential Russian sanctions evasion, including by both state actors and oligarchs,” said Him Das, acting director of FinCEN “Although we have not seen widespread evasion of our sanctions using methods such as cryptocurrency, prompt reporting of suspicious activity contributes to our national security and our efforts to support Ukraine and its people.”

FinCEN provided a list of red flags to assist in identifying suspected sanctions evasion activity and reminded financial institutions of their reporting obligations under the Bank Secrecy Act. The regulator also said that while several Russian and Belarusian banks and financial institutions have been put on the sanctions list, targeted individuals and entities could still attempt to use unsanctioned banks and providers to evade the sanctions.

FinCEN also warned that sanctioned individuals and entities could attempt to use cryptocurrencies to dodge sanctions. However, as Verdict has reported in the past, it is unlikely that oligarchs would use bitcoin, ether or meme coins to skirt sanctions.

Contrary to popular belief, virtual currency movements are traceable. This has been made evident by law enforcement agencies being able to retrieve ransoms paid to cybercriminals in bitcoin. Experts have noted that regulators like FinCEN will be on the lookout for massive amounts of cryptocurrencies being bought and sold.

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Oligarchs could, of course, attempt to avoid detection by only making smaller transactions. However, that could prove a costly alternative as transferring fiat money into cryptocurrencies is expensive in itself and that any added interest in cryptocurrencies is likely to raise the price of those digital assets.

FinCEN acknowledges that evading sanctions by using convertible virtual currencies “is not necessarily practicable,” but still urges cryptocurrency exchanges, administrators and other financial institutions to be alert to completed transactions tied to digital wallets or suspicious activities associated with sanctioned Russian, Belarusian, and other affiliated persons.

That being said, GlobalData researchers wrote in an executive briefing about the Ukraine conflict on March 4 that the sanctions sending the ruble into freefall will make it more likely that Russian consumers will turn “to cryptocurrencies also, as has been seen in other markets hit by inflation such as Nigeria.”

Cryptocurrency exchanges have so far refused to cut off ordinary Russians from their services, but has agreed to bar the specific people sanctioned by the US and its allies.