ECB’s Lagarde Urges Immediate Crypto Regulation To Stop Putin Evading Sanctions

Update: Christine Lagarde, president of the European Central Bank (ECB), has called on lawmakers to approve a regulatory framework on crypto, hinting at potentially preventing Russia from getting around economic sanctions.

In response to a question on Russia potentially using crypto to evade some of these measures, the ECB president urged action on an existing proposal for a regulatory framework on digital assets.

“Whenever there is a ban or prohibition or a mechanism in place to boycott or prohibit, there are, always criminal ways that will try to circumvent the prohibition or the ban” said Lagarde.

“It’s so critically important that MiCA is pushed through as quickly as possible so we have a regulatory framework within which crypto assets can actually be caught.”

Notably, the European Parliament has delayed a vote on the Markets in Crypto Assets Directive (MiCA) due to fears that it would be “misinterpreted as a de facto Bitcoin ban” over questions surrounding the industry’s energy demands. 

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As Daniel Roberts and Jeff John Roberts detailed for Decrypt earlier, the largest European military conflict since World War II is raging in Ukraine, and Bitcoin could shape the outcome.

In the words of the Washington Post, the battle between Russia and Ukraine is “the world’s first crypto war” as both sides discover the advantages of a borderless, permissionless currency.

People around the world have already donated millions to NGOs trying to defend Ukraine from Russia’s savage invasion. Meanwhile, some in Ukraine are turning to Bitcoin as the panic of war is depleting the country’s ATMs. In one case, Danish journalists reportedly used Satoshi’s currency to buy a car and flee the country. Twenty years ago, gold might have been used to barter in a conflict zone—today it’s Bitcoin.

Meanwhile, leading crypto figures—many of whom are as rich as Russia’s loathsome oligarchs—are lending their influence to the conflict. Ethereum founder Vitalik Buterin took to Twitter in his native Russian to decry the invasion. Sam Bankman-Fried tweeted that FTX gave $25 to every Ukrainian on the platform.

These are inspiring stories of how crypto is helping the Ukrainians who are clearly the good guys in this conflict. But the open nature of crypto is a two-way street: experts predict Russia and its leaders will turn to crypto as a way to circumvent the economic sanctions piling up on them. Bitcoin might help the good guys, but it can also help the bad guys. As many in crypto like to say, the tech is agnostic.

In some ways, none of this is new. Rogue states like Iran and North Korea have long turned to alternate forms of finance when they are shut off from the global banking system. And diaspora communities have always found a way to support their side in an overseas conflict. Think of the IRA collecting money in Boston taverns, or Sri Lankan Tamils fundraising in Toronto temples.

What is new and different is how easy it is to fund such activities almost instantly with crypto. The latest example, aside from Ukraine, is the Canadian trucker protests, which were sustained by Bitcoin donations. Many on Crypto Twitter cheered on these activities, but I heard a very different perspective from my family and friends in Canada. Like most of their countrymen, they were exasperated by a radical minority blockading the border, and angry that foreign money was funding much of the chaos.

The point is that crypto has become instrumental in funding conflict, violent or otherwise. With Ukraine the moral case is clear-cut, but that won’t always be the case. There is a risk that the crypto community—out of conviction or just for the pleasure of shit-posting—will use its wealth to meddle in political or military conflicts it doesn’t understand.

This risk is greater given how crypto itself is becoming politicized. As Coin Center’s Jerry Brito noted in an astute essay, crypto used to have a handful of supporters in the Democratic and Republican party, while the majority of politicians didn’t know or care about it. But in today’s hyper polarized environment, crypto has become yet another partisan issue that has led people to form opinions based on what party leaders think—even if they don’t understand the first thing about Bitcoin.

This mix of partisanship and crypto to fund conflicts is a dangerous brew. Fortunately, the former is something that we can control: level-headed people, like those at Coin Center, can help persuade our politicians that crypto is first and foremost a technology that can be used for good or evil. Blockchains don’t care about politics. As Vitalik tweeted this week, “Ethereum is neutral, but I am not.” The sooner people realize crypto is not itself partisan, the better it will be for crypto and society.

As for people and government using crypto to fund conflict, that is here to stay. Just as the Internet is now part of war—think of Russia’s cyber-attacks and the Anonymous hacker collective’s recent counter-attacks—crypto is too. The fight between Russia and Ukraine may be “the world’s first crypto war” but it it is definitely not the last.

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This is Roberts on Crypto, a weekend column from Decrypt Editor-in-Chief Daniel Roberts and Decrypt Executive Editor Jeff John Roberts. Sign up for the Decrypt Debrief email newsletter to receive it in your inbox every Saturday. And read last weekend’s column: How To Get Fined $100 Million And Call It a Win.