Belarusian Trace and Russian Crypto Wallets: The Dangers of New EU Sanctions

Starting May 24, the 20th package of EU sanctions with new restrictions for the crypto market comes into effect. Formally, this refers to a ban on Russian-registered cryptocurrency organizations and platforms involved in money transfers. However, market participants fear a broader effect: not only companies but also users may come under pressure if their transactions start to be flagged as sanctioned by foreign AML services.

The EU has also tightened restrictions against channels related to ruble stablecoins. The already banned A7A5 has been joined by the RUBx token, and support for the development of the digital ruble by European structures has also been prohibited. Essentially, regulators are trying to close loopholes through which the Russian crypto market could conduct international settlements through friendly jurisdictions.

The first signs have already appeared. On May 18, the Dutch AML service Crystal began marking transactions of the Belarusian crypto service WhiteBird as sanctioned. WhiteBird is popular among Russian users and supports regulated exchange of cryptocurrency for Russian rubles. Such a flag could lead to checks, delays, or blocking of funds on foreign exchanges if they use Crystal to assess transaction risk.

However, there is no unified position among AML providers yet. Russian platforms "CoinKit" and "Shard," as well as the American Chainalysis, have not classified WhiteBird transactions as sanctioned. However, experts admit that after the restrictions come into force, similar flagging may be adopted by other major crypto analytics services.

The main risk for ordinary users is "retroactive" flagging. If a person previously bought cryptocurrency through a service that is now considered risky, their wallets may also raise questions from foreign platforms. In such a case, compliance may request an explanation of the origin of funds or temporarily restrict operations.

The sanctions are particularly sensitive for the connection between Russia, Belarus, and Kyrgyzstan. Due to the lack of full internal regulation, many Russian companies used these jurisdictions as a legal basis for crypto payments and exchange. Now, such routes become significantly riskier, especially when working with Europe and countries supporting sanctions.

Experts differ in their assessment of the consequences. Some believe that if sanction flagging is picked up by Chainalysis, Elliptic, and other major players, the Russian crypto circuit could be effectively cut off from part of global liquidity. Others believe that within Russia and allied jurisdictions, the significance of Western AML tags will decrease over time: market participants will simply begin to rely less on foreign verification systems.

Against this background, future Russian regulation of the crypto market is under additional pressure. Rules for exchanges, brokers, depositories, exchangers, and management companies are expected to appear from July 1. But even legalization within the country does not guarantee free access to international services: sanction flagging can make new Russian participants toxic for the external market in advance.