The European Union (EU) is now targeting cryptocurrency flows as part of the economic and trade measures enacted against Russia in its 19th package of sanctions issued last week.

Aiming to affect the funding activities of the Russian government to maintain its war campaign against Ukraine, the union included A7A5, a Russian ruble pegged stablecoin issued under Kyrgyzstan regulations, in the latest package.

The UE stated that recent activity had evidenced Russia’s “increasing use of crypto” in circumventing sanctions, pinpointing A7A5 as a “prominent tool for financing activities supporting the war of aggression.”

Sanctions reached A7, the developer of A7A5, and operators of platforms where large volumes of the stablecoin trade. “Transactions involving this stablecoin have also been prohibited across the EU,” the union stressed.

A7 is owned in part by Promsvyazbank, a Russian state-owned bank that many countries. including Canada, the UK and the U.S., have sanctioned because of its involvement in the funding of the defense sector.

Trading volumes of the stablecoin began increasing after Garantex, a Russian exchange, was taken down by the U.S. Secret Service, reaching a market cap of over 40 billion rubles currently

Including cryptocurrency in the recent sanctions package considerations represents a first for the union, and has an implicit acknowledgement of the efficiency of these instruments to move value, sidestepping traditional rails.

Even so, the recent recognition by Russian authorities of crypto as a settlement tool and the push for streamlining and legalizing its adoption for international payments could render these efforts useless. This is because more involved technical effort will be required to control the usage of decentralized currencies, like BTC or ETH, for skirting these controls.

The use of crypto to sidestep sanctions, due to its specific traits, will keep growing. In this sense, new methods of targeting their use for illicit purposes would have to be developed, especially as circular economies get built around these.

• What recent action has the EU taken regarding cryptocurrencies?
  The EU has included cryptocurrency flows in its 19th package of sanctions against Russia to disrupt state funding for its war efforts in Ukraine.

• Which stablecoin is specifically targeted by these sanctions?
  The sanctions focus on A7A5, a Russian ruble-pegged stablecoin, identified as a significant tool for financing Russia’s military activities.

• What are the implications of these sanctions for cryptocurrency transactions?
  Transactions involving A7A5 have been prohibited across the EU, affecting its developers and trading platforms associated with high volumes of the stablecoin.

• Why is this targeting of cryptocurrency significant?
  This marks a first for the EU in acknowledging cryptocurrency’s role in circumventing traditional financial sanctions, highlighting the challenges of regulating decentralized currencies.

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