Virtual Currency in Sanctioned Jurisdictions – Lexology

Virtual Currency in Sanctioned Jurisdictions – Lexology

Stepping outside of SWIFT

Since its inception more than a decade ago, cryptocurrency[i] has been viewed as a way to supplant traditional global methods of exchanging money. Today, as virtual currencies proliferate, jurisdictions like Japan, South Korea, United Arab Emirates, the United Kingdom, Brazil, Switzerland, and China[ii] have served as major markets. Switzerland has a “Crypto Valley,” Japan recently launched a Self-Regulatory Organization, and the leaders of G20 countries have called for international cryptocurrency taxation—all steps that legitimize this systemically disruptive but economically promising industry.

As Iran, Russia, Venezuela, and other sanctioned jurisdictions join the pack and warm to cryptocurrency, however, this raises a question: Could sanctioned countries use cryptocurrencies to avoid regulatory systems designed to keep them from participating in the global marketplace?

Cryptocurrency in Sanctioned Jurisdictions

In April 2018, the Central Bank of Iran (“CBI”) banned Iranian banks from using cryptocurrencies, including Bitcoin, citing money laundering concerns. The language was clear, and echoed other jurisdictions who were wary of embracing cryptocurrency, given its operation outside of established financial systems: “Banks and credit institutions and currency exchanges should avoid any sale or purchase of these currencies or taking any action to promote them…[Cryptocurrencies] have the option to be used for money laundering, supporting terrorism and exchange of sums between wrongdoers.”[iii]

Subsequent comments from Iranian parties, however, indicated that the country’s position had softened. For example, in October 2018, General Gholam Reza Jalali, head of Iran’s Civil Defense Organization, talked about