Sanctions target crypto infrastructure, with Iran, Russia using unlicensed exchanges to bypass restrictions - IcoHolder.
In 2024, jurisdictions and entities sanctioned by the U.S. Office of Foreign Assets Control (OFAC) saw a staggering $15.8 billion in cryptocurrency transactions, which accounted for 39% of all illicit crypto activity that year, according to a recent report from blockchain analytics firm Chainalysis.
The report highlights a shift in U.S. sanctions strategy, which expanded beyond targeting individuals and small groups. OFAC's crypto-related sanctions now focus on dismantling the financial infrastructure that supports illicit activities, with significant attention on entities connected to organized crime, cyber threats, and geopolitical tensions.
While the overall number of sanctioned entities decreased, their financial footprint remained significant, with Iranian exchanges seeing a rise in transaction volumes. These exchanges have become critical tools for individuals looking to circumvent economic restrictions in countries like Iran. The report revealed that Iranian centralized exchanges (CEXs) saw surges in usage, with transactions suggesting significant capital flight as residents sought ways to preserve wealth.
The U.S. also targeted Russian entities in 2024, aiming to curtail crypto’s role in financing the war against Ukraine and other illicit activities. However, despite sanctions, Russia found ways to bypass the restrictions. For instance, KB Vostok OOO, a Russian UAV manufacturer under sanctions, used local exchanges like Garantex to facilitate nearly $40 million in transactions, pointing to potential involvement in Russia’s military procurement network.
Chainalysis also discovered that unlicensed Russian crypto exchanges have been linked to money laundering efforts, facilitating the movement of millions in illicit funds. This ongoing challenge illustrates how sanctioned entities continue to navigate the global crypto landscape despite growing enforcement efforts.
Another major obstacle to sanction enforcement is the use of crypto-mixing services like Tornado Cash, which allows users to anonymize transaction sources. While the U.S. authorities managed to limit its use in the past, Tornado Cash saw a sharp increase in activity in 2024, with inflows surging by 108% compared to the previous year. This growth was largely attributed to the laundering of funds, including those linked to North Korea's Lazarus Group, notorious for its cybercrimes.
Despite this, sanctions enforcement has made strides in reducing exposure to high-risk jurisdictions. Chainalysis found a measurable decline in exchanges interacting with Iranian services, demonstrating the effectiveness of compliance measures in limiting crypto exchanges' involvement with sanctioned regions.
The Chainalysis report illustrates how cryptocurrencies are increasingly being used as tools to bypass financial sanctions, safeguard wealth, and facilitate cross-border transfers. While the U.S. sanctions have pressured regions like Iran and Russia, crypto continues to play a vital role in these economies, with many turning to decentralized networks and unlicensed exchanges to move funds freely.
As the global regulatory landscape tightens, cryptocurrency’s role in illicit finance remains a critical issue for governments worldwide. However, the adaptability of sanctioned entities and the growth of privacy tools like crypto mixers suggest that the battle over cryptocurrency sanctions is far from over.
