Cryptocurrency Settlements in International Trade: Russian Legal Framework

 

November 5, 2024

BRACE Law Firm ©

 

Cryptocurrency is a digital or virtual currency that uses encryption, known as cryptography, to secure transactions.[1] The implementation of digital technologies in the financial sector and the active development of digital currency projects by central banks in various countries raise the question of their potential use in cross-border payments.

The complexity of cryptocurrency settlements in foreign trade relates to defining the global payment system, the positioning of various digital currencies within the global monetary system, and the risks of their coexistence with the traditional financial system.

The issue of using cryptocurrencies as a means of payment in cross-border settlements is particularly acute for Russia due to sanctions pressure. Russia is among the countries where cryptocurrency is actively used.

While the concept of "digital currency" has existed in legislation since 2020 (Federal Law No. 259-FZ dated July 31, 2020, On Digital Financial Assets, Digital Currency and on Amendments to Certain Legislative Acts of the Russian Federation), only in August 2024 did Federal Law No. 221-FZ dated August 8, 2024, On Amendments to Certain Legislative Acts of the Russian Federation adopt a series of changes. Starting November 1, 2024, this Law permits its mining — defined as the activity of performing mathematical calculations by operating technical and software-hardware tools to record entries in an information system using technology, including distributed ledger technology, for the purpose of issuing digital currency and/or receiving remuneration in digital currency for confirming entries in the information system. Meanwhile, Russia prohibits advertising cryptocurrency and goods, works, or services in the field of crypto-exchange, as well as accepting digital currency for one's own goods, works, or services, except for remuneration in virtual currency for the activities of a miner or a mining infrastructure operator.

This article addresses the challenges of using cryptocurrencies in settlements while conducting foreign trade and the changes in Russian legislation concerning this field.

Use of Cryptocurrencies in Settlements

To what extent can digital currencies in general, and cryptocurrencies in particular, be used to settle foreign trade operations, and can they perform such a function at all? Cryptocurrencies can serve as a means of payment but are not money, as they do not fulfill most monetary functions, lack intrinsic value, and do not represent anyone's obligation. However, the practice of using cryptocurrencies as a means of payment clearly exists.[2]

The use of cryptocurrencies in payments is possible only with counterparties from countries where they are recognized as a means of payment. Currently, the number of such countries is quite limited. Cryptocurrency is legal in the following jurisdictions:[3]

• El Salvador. The country has fully recognized Bitcoin as a means of payment. Since 2021, the law has made no distinction between Bitcoin and traditional currencies, such as the dollar or the euro. Bitcoin is used to pay for goods and services, and the government promotes cryptocurrency through an official application.
• United Kingdom. In the summer of 2023, the UK approved a bill recognizing cryptocurrencies as a means of payment. It allows for the integration of blockchain technology into the state financial markets. Overall, experts note the country's movement toward becoming a global crypto hub and expect further legislative changes aimed at the legal regulation of cryptocurrency.
• United States. From a legislative perspective, the US views cryptocurrency as a freely convertible currency. Companies that process digital transactions or perform Bitcoin-to-currency conversions are considered financial institutions and are subject to laws regulating organizations providing financial services. Specifically, such businesses must register with the Department of the Treasury and comply with the Bank Secrecy Act.
• European Union. Cryptocurrency is an asset and may be legally used in payment operations, but the question of recognizing cryptocurrencies as a means of payment remains open. The EU approved a law aimed at regulating cryptocurrencies in the spring of 2023.
• Under tax law, cryptocurrency is a commodity, but it can be used as a means of payment. Crypto exchanges are financial organizations that file reports in accordance with national legislation and undertake to report suspicious client activity.
• The legislative regulation of the cryptocurrency market is similar to Canada’s approach. Cryptocurrency is considered a commodity, but the activities of crypto exchanges are controlled at the legislative level. While banks are not permitted to process crypto transactions, most organizations can accept payments in Bitcoin. Cryptocurrency payments are also permitted for settlements with private individuals.
• Tax legislation treats cryptocurrency as property, and transactions are subject to capital gains tax. Citizens must maintain records of cryptocurrency transactions and submit them to the tax service. Digital currency held in an account and not used in payment operations is not subject to taxation.[4]

The primary problem participants in international cryptocurrency settlements may face is the inability of foreign counterparties to use this settlement method for various reasons. There is no international standard for regulating the circulation of cryptocurrency. Consequently, national regulation varies significantly or is entirely absent in some countries, leading to difficulties in protecting rights under cryptocurrency operations and transactions. Therefore, participants should consider which country they are sending a payment to and whether accepting cryptocurrency payments is permitted there.[5]

As we can see, the use of cryptocurrency as a means of payment is permitted in countries that are unfriendly toward Russia. In friendly countries, such as China, India, Brazil, and Vietnam, cryptocurrency is used but not legalized. Furthermore, in August 2024, Chinese authorities recognized transactions with "virtual assets" as a method of money laundering. The Supreme People's Court and the Supreme People's Procuratorate jointly announced legislative amendments aimed at tightening anti-money laundering laws to suppress the use of cryptocurrencies in illegal financial activities. According to the new laws, transactions with virtual assets, including those conducted through cryptocurrency exchanges, will be considered actions attempting to "hide and conceal the source and nature of proceeds from crimes". Chinese authorities will now consider money laundering involving amounts over 5 million yuan or causing losses over 2.5 million yuan as serious offenses. Defendants in such crimes face imprisonment for up to five years and a fine of at least 10,000 yuan, or imprisonment for five to ten years and a fine of at least 200,000 yuan in addition to the prison term.[6]

In India, the Financial Intelligence Unit announced a decision in December 2023 to block the operations of nine major crypto exchanges in the country. Government statements indicate that such platforms do not comply with the Indian anti-money laundering law.[7]

Risks and Technical Issues with Using Cryptocurrency in International Settlements

Experts highlight a number of risks and technical issues regarding the use of cryptocurrency:

• Risk of using bad-faith services. For example, a user may entrust the storage or transfer of their funds to a third party operating for fraudulent purposes. There are also services located in a certain gray area, such as crypto-mixers like Tornado Cash.
• Risk of hacking or cyberattacks. According to official data alone, crypto-criminals stole more than $1 billion in 2023.
• Complexity in determining the tax component of transactions. Many jurisdictions lack clarifications regarding cryptocurrency in the context of taxes, necessitating reliance on general provisions or seeking answers from tax regulators.
• Low legal protection for transaction participants and the lack of extensive dispute resolution practice. For instance, questions may arise regarding the status of cryptocurrencies within the bankruptcy proceedings of one of the parties, forcing participants to assume additional risks.[8]

Currently, cryptocurrency cannot be classified as monetary funds because it cannot discharge a monetary obligation; therefore, it cannot be a unit of international trade settlements from a legal perspective. This contradicts the cryptocurrency circulation market and its use as a certain measure of value. The classical division of settlements into cash and non-cash does not include the potential for integrating modern settlements using electronic money into this system.[9]

The exchange rates of many cryptocurrencies are characterized by extremely high volatility. This factor significantly limits the applicability of cryptocurrencies, as it is difficult to determine the price of goods if the monetary unit itself constantly changes in price with great amplitude. Therefore, cryptocurrencies are currently perceived more as business projects and speculative instruments than as a measure of value. Due to the false perception of cryptocurrency as an opportunity for dishonest earnings, it is important to consider how a particular coin works and the likelihood that its acquisition will eventually pay off and yield a profit.[10]

Research shows that the maximum volatility values for the Bitcoin-to-dollar exchange rate reached 130–140% in 2013–2014, and 60%, 20%, and 15% in 2015, 2016, and 2017, respectively. In contrast, the average volatility of the EUR/USD pair does not exceed 4%, and the maximum is below 6%.[11]

When using cryptocurrencies for settlements in foreign trade, participants must consider the adverse financial consequences caused by such volatility. International trade participants may resort to accelerating or delaying cryptocurrency payments or hedging currency risks. Hedging involves reducing or eliminating the risk of unfavorable changes in the exchange rate of the cryptocurrency used against a fiat currency by entering into transactions with derivative financial instruments. These are defined as transactions regarding a specific underlying asset where requirements and obligations are determined based on indicators fixed on the date the transaction is concluded.[12]

Specialists identify the following risk hedging methods in cryptocurrency markets:

• Cryptocurrency futures allow investors to buy and sell cryptocurrency at a pre-set price on a specific date in the future. They can be used to hedge price change risks. For example, if you own Bitcoin and fear its price might drop, you can sell a Bitcoin futures contract. If the Bitcoin price does drop, the profit from the futures contract offsets the losses from holding the Bitcoins.[13]
• Cryptocurrency options give the owner the right (but not the obligation) to buy (a "call option") or sell (a "put option") the underlying asset at a set price during a certain period of time. If you own Bitcoin and fear a price drop, you can buy a put option. If the Bitcoin price falls, the increase in the value of the put option offsets the loss in Bitcoin's value.[14]
• Perpetual swap contracts track the price of the underlying asset, such as Bitcoin, and provide continuous trading opportunities without an expiration date. They use leverage, allowing traders to open larger positions with lower initial margin requirements. For example, if you expect the Bitcoin price to decrease, you can open a short position on a Bitcoin perpetual swap contract. If the Bitcoin price falls, the profit on the perpetual swap contract offsets the losses from Bitcoin.[15]

It should be noted that some (or all) of these methods may be unavailable in certain jurisdictions; therefore, before implementation, one must ensure that the strategies used comply with local law. Additionally, each of these strategies entails certain risks and costs. If it is impossible or impractical to use specific hedging instruments, the foreign trade participant will have to accept the risks associated with volatility.

The volatility of cryptocurrencies as a characteristic limiting their use as payment instruments is the subject of research by many foreign authors as well. This risk can also be mitigated if cryptocurrency is used as a fleeting intermediary when exchanging real monetary funds — i.e., using Bitcoin as a transit instrument. In this scenario, one participant in an export-import transaction acquires Bitcoins for currency in their jurisdiction and immediately transfers them to their counterparty, who instantly converts them into the desired currency in another jurisdiction and credits the amount to their bank account.[16]

In this scheme, funds remain in cryptocurrency for a very short time, making the risks of their depreciation relatively low. However, other risks remain: both financial and operational-technological risks inherent in all cryptocurrency transactions. These include, in particular, the risk of non-payment by the counterparty (counterparty risk) and liquidity risks, the levels of which depend on the choice of the specific cryptocurrency for transit. Additionally, the short duration of time funds spend in cryptocurrency is a marker that allows transit cryptocurrency operations to be tracked and separated from investment transactions. Transit use of cryptocurrencies is applied for international payments as well as for capital flight when currency restrictions exist.[17]

As a solution to the high volatility of Bitcoins, stablecoins emerged. Unlike ordinary cryptocurrency, the rate of stablecoins is pegged to the value of an underlying asset: this could be the rate of a real currency (e.g., the dollar or the yuan), the cost of a commodity (e.g., an oil future), or a security (shares of a specific company). Stablecoins are less volatile than other cryptocurrencies due to the peg to the price of a financial instrument. Consequently, the cryptocurrency market environment and other factors affecting the economy have a lesser impact on stablecoin quotes. However, it cannot be said that stablecoin holders are completely protected from financial loss risks.[18]

Stablecoins can be classified by collateral and by management system. Stablecoins backed by real fiat currencies are the least volatile. Such stablecoins are issued by the state or private companies. If a stablecoin is pegged to the US dollar exchange rate, it is called a "cryptodollar." Stablecoins backed by commodities (precious metals, oil, and other raw materials) are digital analogs of commodities. The dynamics of their value and volatility depend on the type of collateral: for example, the price of gold is less volatile than the price of oil, especially in the medium and long term. Demand for such tokens is low, but, for instance, a gold-pegged stablecoin allows investors who cannot buy an ingot to invest in this precious metal.[19]

Another class of digital currencies convertible into monetary funds is central bank digital currencies (the "CBDCs"). Currently, regulators in various countries are actively testing CBDCs for potential use in international settlements.

CBDCs represent Central Bank obligations denominated in the national currency, having a digital representation and capable of serving as a means of payment and a measure and store of value. This is a new form of money intended for use as legal tender. As such, they are safer and inherently non-volatile, unlike cryptocurrency.

As of July 2022, there were about 100 CBDCs worldwide in research or development stages, and two were fully introduced into circulation: the eNaira in Nigeria, announced in October 2021, and the Bahamian Sand Dollar, which debuted in October 2020.[20]

Russian Legal Regulation of Cryptocurrencies for International Settlements

The position of the Bank of Russia and other agencies on the use of cryptocurrencies in international settlements has changed several times. In 2022, the Bank of Russia advocated for a total ban on cryptocurrency, but this position was not supported by the Ministry of Finance, which viewed cryptocurrency as a means of payment in foreign trade. Later, they reached a consensus on this issue, but the experiment with cryptocurrency settlements has yet to begin. In February 2024, the Bank of Russia admitted that the situation with foreign trade settlements for businesses was deteriorating. However, it emphasized that cryptocurrency cannot be considered a settlement unit in Russia because it is often used in financial pyramids.[21]

The Center for Foreign Trade under the Ministry of Industry and Trade of Russia conducted a survey revealing that 52% of Russian importers in 2023 faced problems with cross-border currency settlements — a 10 percentage point increase over 2022. Approximately 200 companies participated in the Ministry of Industry and Trade study. Survey participants identified the main problems they faced in cross-border settlements:

• A foreign bank is not ready to accept a payment from Russia – 42%;
• A correspondent bank refuses to process such a payment – 17%;
• The Russian bank is disconnected from SWIFT – 13%.[22]

Complaints about foreign banks refusing Russian transfers have become more frequent — 42% of companies complained about them (up from 32% a year earlier). Importers cited other difficulties in 2023: manufacturers refusing to sell goods, delivery problems, expensive logistics, and significant increases in the cost of goods. Analysts from the Ministry of Industry and Trade also investigated the currencies used to pay for imports last year. The Chinese yuan became the primary currency, with its share rising from 3.6% in 2022 to 60.5%. The share of the ruble also grew from 18.4% to 21.3%, while the share of the US dollar and the euro decreased to 8.8% and 4.1%, respectively. As a potential way to solve business problems, authorities suggest developing alternative payments: using digital financial assets (DFAs) and cryptocurrency.[23]

The core idea of cryptocurrency settlements in international trade is that a buyer (a Russian entity) enters into an agreement with a foreign seller stating that payment for supplied goods can be made in cryptocurrency. In this case, the Russian entity must acquire the required amount of this cryptocurrency within the Russian Federation and then transfer (sell) it to the supplier. Thus, the buyer fulfills the payment obligations for the goods upon transferring the cryptocurrency. Such settlements are economically justified for both parties only in a cryptocurrency whose rate changes according to the rate of conventional currencies—for example, the Russian ruble, dollar, or euro — meaning settlements should be conducted in stablecoins. These settlements will not pass through foreign banks, ensuring the payment cannot be frozen due to non-compliance with sanctions legislation.[24]

The President of Russia signed Federal Law No. 223-FZ dated August 8, 2024, On Amendments to Certain Legislative Acts of the Russian Federation and Federal Law No. 221-FZ dated August 8, 2024, On Amendments to Certain Legislative Acts of the Russian Federation. These laws amend individual legislative acts regarding the regulation of digital currency and the establishment of experimental legal regimes in the field of digital innovations in the financial market.

Digital rights and digital currencies share the same technological basis—they exist thanks to blockchain technology — but their legal status in Russia is entirely different.

Digital rights in Russia exist in the form of digital financial assets regulated by Federal Law No. 259-FZ dated July 31, 2020, On Digital Financial Assets, Digital Currency and on Amendments to Certain Legislative Acts of the Russian Federation (the "Law on Digital Financial Assets"), as well as utility digital rights regulated by Federal Law No. 259-FZ dated August 2, 2019, On Attracting Investments Using Investment Platforms and on Amendments to Certain Legislative Acts of the Russian Federation (the "Law on Attracting Investments Using Investment Platforms").

Digital financial assets (the "DFAs") are digital rights issued, recorded, and circulated in information systems, which include:

• Monetary requirements;
• The ability to exercise rights under equity securities;
• Rights of participation in the capital of a non-public joint-stock company;
• The right to demand the transfer of equity securities.

The Russian DFA market is demonstrating impressive dynamics, exceeding the boldest expert forecasts. According to the rating agency "Expert RA," the volume of issued DFAs reached 316 billion rubles in the first nine months of 2024, more than double the expectations of DFA information system operators. The top three issuers captured nearly 70% of the market: Alfa-Bank accounts for 34% of issuances, VTB controls 22%, and Sberbank holds 13%. Notably, investors perceive bank DFAs as an alternative to classic deposits.[25]

Please note that Russian residents are prohibited from accepting digital financial assets as a means of payment or other consideration for transferred goods, performed works, or rendered services, or in any other manner that suggests payment for goods (works, services) with a digital financial asset (Article 4, Part 10).

Utility digital rights (the "UDRs") are another type of digital right. Under the Law on Attracting Investments Using Investment Platforms, UDRs may be acquired, alienated, and exercised within an investment platform regarding:

• The transfer of things;
• The transfer of exclusive rights to intellectual activity results (e.g., patents) and/or the rights to use them;
• The performance of works and/or the rendering of services.

The creation of a UDR, its exercise, and its disposal—including transfer, pledge, encumbrance by other methods, or restriction of disposal—are possible only within an investment platform. UDRs are recognized as such if they originally arose as a digital right based on a contract for the acquisition of a utility digital right concluded using an investment platform.

Generally, these refer to crowdfunding projects where UDRs are acquired in exchange for a future product or service. Currently, no major UDR issuances are known.

Federal Law No. 45-FZ dated March 11, 2024, On Amendments to Certain Legislative Acts of the Russian Federation amended the Law on Digital Financial Assets, the Law on Attracting Investments Using Investment Platforms, and Federal Law No. 173-FZ dated December 10, 2003, On Currency Regulation and Currency Control. According to these changes, DFAs and UDRs may be used as consideration under foreign trade contracts concluded between residents and non-residents that involve the transfer of goods, performance of works, rendering of services, or the transfer of information and intellectual activity results, including exclusive rights to them.

An operation to transfer UDRs, DFAs, and/or digital rights simultaneously including DFAs and UDRs is subject to mandatory control if these digital rights are used as consideration under foreign trade contracts concluded between residents and non-residents.

The law defines digital rights that are and are not currency valuables. Specifically, digital rights that are currency valuables include DFAs involving monetary requirements in foreign currency, the ability to exercise rights under external equity securities, and/or the right to demand the transfer of external equity securities, as well as digital rights simultaneously including DFAs and UDRs. Conversely, digital rights that are not currency valuables include DFAs involving monetary requirements in the currency of the Russian Federation, the ability to exercise rights under internal equity securities, rights of participation in the capital of a non-public joint-stock company and/or the right to demand the transfer of internal equity securities, utility digital rights, and digital rights simultaneously including DFAs and UDRs.

It is also established that currency operations with digital rights are carried out in the information systems of information system operators where DFAs are issued, as well as in the investment platforms of investment platform operators.

Currency operations between residents involving the acquisition and alienation of digital rights that are currency valuables are permitted, provided that settlements are made in rubles, as are operations related to the fulfillment of obligations by the person obligated under digital rights that are currency valuables, provided such obligations are fulfilled in rubles.

The Bank of Russia, in coordination with the federal executive body authorized by the Government of the Russian Federation, has the right to establish a ban on certain types of currency operations related to the acquisition and alienation of digital rights, as well as to stipulate conditions for such currency operations. The Bank of Russia also has the right to establish specifics for residents submitting supporting documents and exchanging information and data when conducting currency operations with digital rights.

Digital currency — this term refers to well-known cryptocurrencies. Under the Law on Digital Financial Assets, digital currency is recognized as a set of electronic data (digital code or designation) contained in an information system, which is offered and/or can be accepted as a means of payment that is not a monetary unit of the Russian Federation, a monetary unit of a foreign state, and/or an international monetary or settlement unit, and/or as an investment, and for which there is no person obligated to every holder of such electronic data, except for the operator and/or nodes of the information system obligated only to ensure that the issuance of this electronic data and actions to record (change) entries in the information system comply with its rules.

Currently, legislation does not permit the use of digital currencies for settlements under foreign trade contracts.

Under Article 14, Clause 5 of the Law on Digital Financial Assets, legal entities whose personal law is Russian law, branches, representative offices, and other separate subdivisions of international organizations and foreign legal entities, companies, and other corporate entities with civil legal capacity created in the Russian Federation, and individuals actually present in the Russian Federation for at least 183 days during 12 consecutive months, are not entitled to accept digital currency as consideration for transferred goods, performed works, or rendered services, or in any other manner suggesting payment for goods (works, services) with digital currency. An exception is made for receiving digital currency as a result of digital currency issuance and/or for a person performing digital currency mining (including a mining pool participant) or a person organizing mining pool activities receiving remuneration in digital currency for confirming entries in an information system (including as a result of distributing digital currency among mining pool participants).

Furthermore, the distribution of information regarding the offer and/or acceptance of digital currency as consideration for transferred goods, performed works, or rendered services, or in any other manner suggesting payment for goods (works, services) with digital currency, is prohibited within Russia.

The reason DFAs are recognized as objects of currency legal relations while digital currencies are not is that the latter lack an obligated person. Regarding DFAs, both the person issuing the digital financial assets and the professional financial market participants mediating their circulation are known. Consequently, holders of digital financial assets possess a greater volume of guarantees for protecting their rights and legal interests than holders of digital currencies (cryptocurrencies).[26]

Meanwhile, on April 8, 2024, at a joint meeting of Russian State Duma committees, the Head of the Bank of Russia, Elvira Nabiullina, stated that the regulator advocates for the accelerated adoption of a bill on cryptocurrency international settlements. By analogy with the rule previously established for Russian DFAs, it is proposed to allow the use of digital currencies as a means of payment in foreign trade transactions. She emphasized that such settlements should begin within an experimental legal regime (an "ELR"), which we will examine below.[27]

Experimental Legal Regime in the Sphere of Digital Innovations and the Financial Market

Federal Law No. 258-FZ dated July 31, 2020, On Experimental Legal Regimes in the Sphere of Digital Innovations in the Russian Federation provides for the application of ELRs in digital innovations and the financial market.

An ELR is a regime introduced by an authorized body for a specific digital innovation industry that waives general regulatory norms and replaces them with special rules. Specifically, an ELR may be introduced for the financial market, including the use of digital currencies.

The Bank of Russia must establish the conditions for the operation of the relevant ELR, including the number of participants, the rights and obligations of participants, the authorized organization through which settlements will be made, transaction amount limits, etc. The Bank of Russia must coordinate the ELR conditions with the Ministry of Finance, the Federal Security Service, and Rosfinmonitoring.[28]

Within an ELR, the following possibilities are additionally established:

• Exchange trading of digital currencies as a commodity. Specifically, criteria for organizers of such trading are defined for this purpose;
• Modifying or excluding the application of provisions of Federal Law No. 173-FZ dated December 10, 2003, On Currency Regulation and Currency Control;
• Special regulation in the field of national payment system legislation, differing from the regulation provided by the relevant federal law. Requirements are also established for the activities of an electronic platform operator providing settlement services for transactions concluded using the electronic platform.[29]

In October 2024, it became known that the Bank of Russia plans to conduct the first international cryptocurrency payments by the end of this year. However, the participants and the number of transactions are unknown because, according to the Head of the Central Bank, "we consider it closed."[30]

The ELR will last three years, after which a decision will be made on whether to amend general regulation. A decision may be made earlier if the results of the experiment allow for the determination of general regulatory norms.[31]

Possibilities for "Circumventing" International Sanctions When Using Cryptocurrencies in Cross-Border Settlements

The proposed structure of the payment process in the experimental regime through banks testing the cross-border cryptocurrency payment system may look as follows:

• Conclusion of a contract between companies with a condition allowing for the use of cryptocurrencies in settlements;
• The payer approaches the bank regarding the need for cryptocurrency settlements;
• Upon receiving a positive response, the supplier issues the payer an invoice describing the goods or services, the amount in cryptocurrency, and the wallet address;
• The payer deposits monetary funds into a bank account, after which cryptocurrency is acquired with these funds and sent to the supplier to complete the transaction;
• Upon receiving the cryptocurrency funds, the supplier converts them into monetary funds at its authorized bank in its jurisdiction and currency.[32]

This procedure is mirrored for transactions in the opposite direction.

It should be noted that, in theory, this mechanism allows for cross-border cryptocurrency settlements with counterparties from certain friendly countries. However, as previously stated, similar mechanisms have not been developed or legalized in those countries. It also addresses the issue of conducting cross-border payments under blocking sanctions from unfriendly countries, as the restrictions are localized in banks of the external perimeter not regulated by national legislation. The cryptocurrency settlement scheme requires identification of the transaction participants and the goods — the subject of the transaction.

As is well known, the US Department of the Treasury imposed sanctions on a number of Russian banks, including them on the SDN List (Specially Designated Nationals and Blocked Persons List). This list of restrictions provides for the forced closure of correspondent accounts, the blocking of assets of sanctioned banks, and a ban on them conducting any transactions with local counterparties. Similar sanctions were introduced by European Union countries. The banking variant of cryptocurrency settlements does not effectively circumvent sanctions from unfriendly states, as these transactions require compliance with KYC ("know your customer") procedures and can be freely tracked and blocked.

The use of transit Bitcoins off-chain is possible. In the context of cryptocurrencies, the term "off-chain" refers to processes that occur outside the blockchain.[33] Using such Bitcoins significantly complicates the identification of transaction subjects and purposes. This "non-banking" variant of cross-border cryptocurrency settlements creates the possibility of circumventing sanctions but limits control by the state regulator.

Furthermore, within the eighth sanctions package, the European Union prohibited its companies from opening crypto accounts and crypto wallets and providing cryptocurrency storage services to Russian residents.[34] However, this requires identifying them as such. The greater the anonymity a particular crypto service provides, the more suitable it is for use under the sanctions regime.

The urgency of the prompt adoption of regulatory acts allowing for the use of cryptocurrencies in foreign trade payments is due, in part, to the inability to predict potential further sanctions waves that could completely preclude cross-border transfers. Accordingly, the development and implementation of an effective mechanism to accelerate — or simply enable — international cryptocurrency settlements is one of the priority tasks today.

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References

[1] Yu.I. Minina, A.S. Sorokina, A.E. Fedotov, Cryptoeconomics, Journal "Innovations. Science. Education", No. 48, 2021.

[2] L.V. Krylova, Possibility of Using Digital Currencies for Cross-Border Payments under Sanctions, Journal "Finance: Theory and Practice", No. 28(2), 2024.

[3] In Which Countries is Bitcoin Legalized as a Means of Payment?, VC.ru Website. [4] Ibid.

[5] Cryptocurrencies in International Settlements: What Prevents Their Use?, Pravo.ru Website.

[6] Cryptocurrencies in China, TADVISER Website. [7] Cryptocurrencies in India, TADVISER Website.

[8] Cryptocurrencies in International Settlements: What Prevents Their Use?, Pravo.ru Website.

[9] O.P. Kazachenok, Prospects for the Use of Cryptocurrency in International Trade Settlements, Journal "Eurasian Advocacy", No. 2(45), 2020.

[10] T.V. Smetanina, R.D. Komleva, S.N. Malyavin, Analysis of Cryptocurrencies as the Most Acceptable Means of Payment in the Context of the Technological Revolution, Journal "PNIPU Bulletin. Social and Economic Sciences", No. 2, 2024.

[11] G.O. Krylov, A.Yu. Lisitsyn, L.I. Polyakov, Comparative Analysis of the Volatility of Cryptocurrencies and Fiat Money, Journal "Finance: Theory and Practice", No. 22, 2018.

[12] Hedging Currency Risks by Participants in Foreign Economic Activity, Training manual of the ANO DPO "Export School of JSC 'Russian Export Center'".

[13] Hedging in Cryptocurrencies and Seven Useful Hedging Strategies, Binance Academy Website.

[14] Ibid.

[15] Ibid.

[16] L.V. Krylova, Possibility of Using Digital Currencies for Cross-Border Payments under Sanctions, Journal "Finance: Theory and Practice", No. 28(2), 2024.

[17] Ibid.

[18] T.V. Smetanina, R.D. Komleva, S.N. Malyavin, Analysis of Cryptocurrencies as the Most Acceptable Means of Payment in the Context of the Technological Revolution, Journal "PNIPU Bulletin. Social and Economic Sciences", No. 2, 2024.

[19] Ibid.

[20] The Rise of CBDCs, International Monetary Fund Website.

[21] Business Prepares to Test DFAs in International Settlements, April 8, 2024, Pravo.ru Website.

[22] More than 50% of Importers Experience Problems with Currency Settlements, April 10, 2024, Pravo.ru Website.

[23] Ibid.

[24] K.Zh. Kazaryan, A.P. Albov, Analysis of Legislative Changes Allowing Settlements of Residents with Non-Residents in Digital Currency, Journal "Legal Almanac", No. 4(35), 2024.

[25] Russian DFAs Break Records: Issuance Volume Exceeded 316 Billion Rubles, October 29, 2024, Hash Telegraph Website.

[26] A.A. Sitnik, Objects of Currency Legal Relations in the Context of Counteracting Restrictive Measures Introduced by Unfriendly States, Journal "Actual Problems of Russian Law", No. 7, 2024.

[27] Ibid.

[28] Regulation of Cross-Border Settlements Using Cryptocurrencies, Russian and Foreign DFAs, August 12, 2024, Pepeliaev Group Website.

[29] Ibid.

[30] A. Morozova, Nabiullina Announced the First International Cryptocurrency Settlements by the End of the Year, October 17, 2024, Forbes Website.

[31] Ibid.

[32] K.I. Akshentseva, Difficulties in International Settlements, Journal "Economy and Business: Theory and Practice", No. 7, 2024.

[33] Information from the Binance Academy Website.

[34] EU Eighth Package of Sanctions Against Russia: What You Need to Know, October 6, 2022, RBC Website.