Sanctions Failing? Crypto Activity in Sanctioned Regions Is Booming

During 2024, the share of illicit cryptocurrency transfers coming from sanctioned territories climbed dramatically to 39% of the global total. Just two years back, it stood at 25%, and in the fourth quarter of 2024, that number almost hit 60%—amounting to around $15.8 billion over the year.

This surge marks the second highest level of transactions ever seen in sanctioned regions. Analysts point to a wave of increased crypto activity among Iranian and Russian companies, organizations, and individuals, coupled with a boost in operations by local crypto exchanges amid economic turbulence and widespread financial sanctions.

Russia in OFAC's Crosshairs

OFAC’s gaze has sharpened in recent years, turning its sights on Russian enterprises, oligarchs, and shadow networks abroad. In a striking move in August 2024, sanctions were levied against LLC “KB Vostok,” the innovator behind unmanned aerial vehicles that served the Russian military, all while transacting in cryptocurrencies. Before this decisive blow, the firm had navigated transactions of no less than $40 million.

Check this out: OFAC Could Exert Influence on Tether

Despite these crackdowns, Russian cryptocurrency exchanges that eschew mandatory verification (KYC) are proliferating—often through strategic rebranding and the introduction of fresh platforms. Their legal jurisdiction remains ambiguous, yet they persist in their collaboration with sanctioned Russian banks, even though deposit levels have been on a decline over the past three years. 

Consider the case of Cryptex, a crypto exchange that over six years has facilitated more than $5.8 billion in transactions, primarily for clients who were not fully vetted. The founder of Cryptex also launched projects like PM2BTC and UAPS, both of which later fell afoul of OFAC sanctions due to their associations with cybercriminal networks, scam operations, and extortionists. Even so, UAPS managed to process digital asset transfers worth $100 million just last year.

Cryptocurrencies and Sanctions

Across the globe, the use of cryptocurrencies to evade sanctions extends far beyond Russia. In a similar vein, Iran and North Korea have embraced these digital tools, and some nations—chiefly within the BRICS alliance—see them as a pathway to elude Western constraints and possibly introduce their own international currency.

Moreover, it is crucial to recognize that not every crypto operation in these restricted regions is the product of nefarious or deceptive schemes. For many locals, digital assets serve as a refuge for their savings, a conduit for global remittances, and a shield against the devaluation of their wealth. 

Iran serves as a clear example here, where annual inflation rates are over 40–50%. To stem the outflow of capital, the government has cracked down on the use of traditional currencies and centralized crypto exchanges. Still, people manage to get their hands on cryptocurrencies.

The country’s financial woes have been worsened not just by sanctions on its banking system, but also by an oil embargo introduced in 2018, and soon after, by the risk of a possible conflict with Israel.

Related: Iran imported goods paid in crypto to circumvent sanctions

Bitcoin Ascends Above Stablecoins

Curiously, in regions under sanctions—such as Iran—users are gravitating toward Bitcoin rather than stablecoins. This choice stems from the fact that fund issuers possess the power to freeze accounts linked to U.S. sanction lists, whereas Bitcoin eludes the grasp of external regulators.

Spikes in bitcoin outflows occurred around the time it became known that Iran was likely to launch missiles, as well as within a few days after the events, as we see above on April 9th and 14th, 2024 — and similarly in late September and into early October of 2024,

observe analysts at Chainalysis.

Bitcoin’s surge in global popularity is a cause for celebration, yet it casts a shadow: sanctioned states are now banding together to solve their financial crises, wielding cryptocurrency as a weapon in their economic arsenal. Consider Iran, whose strategic alliances with Russia in both military and financial realms have amplified its ability to underwrite terror networks across the Middle East.

To forestall a future where cryptocurrencies become the norm for evading sanctions, Western law enforcement must act without delay. Enhancing current sanctions—including secondary ones—and rapidly integrating universal tracking tools to pinpoint illicit blockchain assets will be essential, ensuring these funds are immobilized the moment an attempt is made to convert or spend them.

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