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Countries Under Sanctions See Surge in Illicit Crypto Activity
Countries targeted by the U.S. government sanctions have seen a significant surge in illicit crypto activity, with nearly $16 billion in digital assets received last year, accounting for about 39% of all illicit token transactions, according to a report from Chainalysis.
2024 was a year in which those nations, particularly Iran, saw a significant increase in sanctions-related activity, noted the report from the crypto-analytics firm.
“As Western restrictions tighten, sanctioned nations are turning to cryptocurrencies and alternative financial systems to sustain trade and access capital,”
according to the report, which cited Russian and Iranian financial transactions with trade partners such as China and India, using payment mechanisms that do not rely on U.S. dollars.
“While cryptocurrency use in sanctioned jurisdictions may be associated with illicit state-controlled finance, it also represents an important financial lifeline for ordinary citizens facing economic hardship under restrictive regimes,” the report said.
The U.S. Treasury’s Office of Foreign Assets Control (OFAC) is the government agency responsible for setting sanctions, and last year it issued 13 that included crypto addresses, down from the previous year but still a high number.
With President Donald Trump in the executive branch and Scott Bessent at the helm of the Treasury, the pro-crypto administration may take a different approach to digital assets.
Crypto-mixing platform Tornado Cash, which was famously targeted by U.S. authorities in 2023, was still able to handle hundreds of millions of dollars in crypto transactions per month in 2024, the report said, although it has not returned to its pre-sanction level.
Such services are criticized for their use in the laundering of stolen funds or in evading sanctions, and are difficult to shut down because they operate via smart contracts on a decentralized blockchain.
Users pushing stolen funds accounted for an increase in Tornado Cash’s usage in 2024, amounting to more than 24% of its total inflows, according to Chainalysis.
Tornado Cash has become a symbol of the industry’s legal fight with the U.S. government over user anonymity and whether developers should be liable for what they create, and a U.S. federal appeals court rejected the original sanctions in November.
Chainalysis devoted close attention to Iran in its latest report.
“Iran’s government maintains extensive control over the country’s financial system, including cryptocurrency infrastructure,” the document noted.
“For many Iranians, cryptocurrency represents an alternative financial system, and the increasing use of Iranian crypto exchanges suggests that more individuals and institutions are resorting to crypto to safeguard wealth and circumvent financial restrictions,”
Conclusion
The surge in illicit crypto activity in countries under U.S. sanctions highlights the growing importance of cryptocurrencies and alternative financial systems in these regions. As Western restrictions tighten, sanctioned nations are increasingly turning to cryptocurrencies to sustain trade and access capital. However, this development also raises concerns about the potential use of cryptocurrencies for illicit activities such as money laundering and sanctions evasion.
FAQs
Q: What is the U.S. government’s stance on cryptocurrencies?
A: The U.S. government has taken a mixed stance on cryptocurrencies, with some agencies expressing concerns about their potential use in money laundering and sanctions evasion, while others have acknowledged their potential benefits and recognized the need for regulatory clarity.
Q: What is the role of Tornado Cash in the surge in illicit crypto activity?
A: Tornado Cash, a crypto-mixing platform, was targeted by U.S. authorities in 2023 and was still able to handle hundreds of millions of dollars in crypto transactions per month in 2024. The platform’s use in money laundering and sanctions evasion is a major concern.
Q: What is the significance of Iran’s role in the surge in illicit crypto activity?
A: Iran’s government maintains extensive control over the country’s financial system, including cryptocurrency infrastructure. The increasing use of Iranian crypto exchanges suggests that more individuals and institutions are resorting to crypto to safeguard wealth and circumvent financial restrictions.
Q: What is the future of cryptocurrencies in the face of U.S. sanctions?
A: The future of cryptocurrencies in the face of U.S. sanctions is uncertain. While some countries may continue to use cryptocurrencies to circumvent sanctions, others may see the benefits of working with the U.S. and other Western countries to regulate and legitimize the use of cryptocurrencies.
