CryptoLaw Newsletter #40

Can crypto help Russia evade sanctions? EU’s MiCA faces PoW controversy; shareholders sue ConsenSys AG; Korea invests in metaverse; are DAOs “phenomenally dumb idea”?

Hello everyone,

Much of the crypto news this week was dominated by the role of digital assets in the Ukraine-Russia war, while a leaked draft of the EU’s MiCA regulation stirred some controversy. And much more:

Digital Assets

  • Ukraine <> Russia – Cryptoassets were high on the political agenda again over the past few days. This time not because of a new ransomware attack, congressional hearing or high-profile court case, but because of the war in Ukraine and the role crypto has played in that conflict. The Ukrainian government collected millions worth of crypto donations. Western governments unleashed a barrage of sanctions against Russian individuals and companies. Some public officials feared that Russia may use crypto to evade sanctions. If that was Russia’s plan, it could explain why the Russian Finance Ministry in recent weeks pushed for more crypto-friendly rules, very publicly going against the central bank’s call for a near-total crypto ban, with President Putin intervening. “I don’t think that we’re where we need to be in terms of preventing individuals who are subject to sanctions from moving value and operating using the pseudonymity of cryptocurrency,” said Stuart Levey, who was Treasury’s sanctions czar under Presidents George W. Bush and Barack Obama, according to Politico. European Central Bank president Christine Lagarde said “[i]t’s so critically important that MiCA [The EU’s draft Markets in Crypto Assets Regulation] is pushed through as quickly as possible so we have a regulatory framework within which crypto assets can actually be caught”. (Youtube and Cointelegraph) However, can crypto plausibly give Russia a way to “evade” or mitigate the recent sanctions? Not at all, tweeted Jake Chervinsky. “[C]rypto markets are too small, costly, & transparent to be useful for the Russian economy. Crypto markets are thin to start with, & ruble trading pairs are rare. With Russia cut off from the world’s crypto industry, they can’t source nearly enough liquidity to matter,” he wrote. Politico added: “Treasury officials say they aren’t overly worried about crypto undermining the effort to choke off the Kremlin’s access to capital. Laundering large amounts of money through a dizzying array of digital wallets and exchanges is expensive, time-consuming and would likely be visible in the broader crypto market, given the massive investment portfolios of individuals and institutions named in the sanctions.” Countries such as Iran, North Korea and Venezuela have previously relied on crypto-related activities to fill the treasury coffers in the face of heavy sanctions. Did that work? Could Russia follow their playbook? “Iran has tried mining bitcoin, North Korea has been accused of stealing vast amounts of cryptocurrency and Venezuela has created its own virtual currency, the petro. Experts said none of those countries has solved the problem of how to easily launder the digital coin,” according to NBC News. “If Russia is prevented from exporting its gas or oil, it might instead use it to mine cryptocurrency,” NBC News quoted Tom Robinson, co-founder at blockchain analytics company Elliptic. “Iran has already done exactly this — effectively ‘exporting’ millions of barrels of oil in this way,” Robinson said.  (NBC) What do the numbers say so far? “Bitcoin trading denominated in the Russian rouble went into overdrive when the invasion began”, Reuters wrote on Tuesday. Crypto exchanges in Ukraine also saw a surge in trading volumes. “Trading between the Russian rouble and crypto assets such as bitcoin and tether has doubled since the assault on Ukraine began, reaching $60mn a day on Monday, according to data from Chainalysis, a crypto research group. That suggests Russian accounts, barred from the established dollar-based financial system through sanctions, are stashing funds in crypto or moving wealth overseas”. (FT) However, those higher volumes aren’t necessarily linked to sanctions evasion. Instead, the crypto boost may come from ordinary Russians and Ukrainians converting their money into crypto as a safe heaven. “Capital flight and tax avoidance may also be part of the cryptocurrency adoption story in eastern Europe, particularly in Russia and Ukraine,” Chainalysis wrote. (FT) Regardless, “[g]overnments are likely to look at the regulation of crypto as a matter of increasing urgency,” said Paul Donovan from UBS Global Wealth Management to the FT. ECB President Lagarde’s call to “push through” MiCA as soon as possible certainly support that prediction.

  • EU – A controversial provision viewed as a potential “bitcoin ban” was deleted from the EU’s draft legal framework on crypto-assets, the Markets in Crypto Assets Regulation. A leaked draft of MiCA included a provision targeting crypto assets linked to Proof of Work (PoW) consensus mechanisms, which critics viewed as a bitcoin ban. Both the Bitcoin and Ethereum blockchain rely on PoW consensus, which means any digital assets built on those blockchains are also supported by energy-intensive PoW. However, Dr. Stefan Berger, MEP and the EU Parliament’s MiCA rapporteur, tried to reassure the crypto community, tweeting that the provision shouldn’t not be “misinterpreted as a de facto Bitcoin ban”. The provision was deleted from the latest draft, said Berger, but the committee is yet to take a decision on the text. “The decision has not yet been made,” he added. The EU Parliament is now likely to vote on the draft on March 14 or in early April. (The Block)

  • US – The Securities and Exchange Commission (SEC) said it is unable to locate the founder of BitConnect, charged with wire fraud, commodity price manipulation and international money laundering, among other things. BitConnect is an “unincorporated entity the
    Commission must serve through its manager, Kumbhani”, whose whereabouts remain unknown, the SEC wrote in a letter to Judge Koeltl of the US District Court for the Southern District of New York. Kumbhani and BitConnect were indicted with a US$2.4 billion Ponzi scheme. (Cointelegraph) /// The FBI wants “state-of-the-art tracing and analytical software and software licenses to detect the illicit use of crypto by criminals”. It is looking for a private software provider that can help it track crypto representing “95% of the market capitalization as listed on”. (Forbes)

  • Switzerland – Shareholders of blockchain company ConsenSys AG want an audit to investigate “serious irregularities” in the firm’s accounting, claiming founder Joseph Lubin breached his fiduciary duties towards the company to the detriment of minority shareholders. According to the lawsuit filed in Switzerland, assets were “illegally” transferred from ConsenSys AG (CAG) to a newly formed entity (CSI), with Lubin a majority shareholder and director in both companies. The transfer amounted to a “de-facto liquidation of CAG, without the required consent of a shareholder meeting,” according to the shareholders, who are former employees of CAG.

  • India – A Supreme Court Justice queried a top government lawyer on cryptoassets during a hearing. Justice Surya Kant asked Additional Solicitor General of India Aishwarya Bhati to clarify the government’s position on crypto legality, in light of the finance ministry’s proposal to impose a 30% tax on crypto trading. Although Additional AG answered “we’ll do that”, he also argued that the question of crypto’s legality in India was not a key question for the case at hand. So we may not get the clarification after all. (Coindesk)

  • Israel – Israel’s Defence Ministry announced the seizure of 30 digital wallets containing cryptocurrency allegedly intended to fund Hamas. (Decrypt)

  • UK – The government wants a new economic crime bill that will give it greater powers to seize crypto assets, in an attempt to tackle the growing threat from the use of online currencies for money laundering. (FT) /// The UK’s advertisement regulator ASA called Floki Inu ads “irresponsible”. Floki Ltd alleged the ads, which ran on London tubes, was aimed at “informed” consumers. ASA disagreed, finding that the underground posters were aimed at a general audience. The “ad must not appear again in the form complained about,” ASA ruled.

  • Australia – The Cyber Security Industry Advisory Committee listed four key areas to explore for safer crypto adoption and reduced cybersecurity threats. Greater international cooperation and enhanced public sector capabilities are part of the recommendations to secure a “crypto-secure future” for the country. “Clarifying the regulation of the broader range of cryptocurrency service providers beyond those [digital currency exchanges] regulated for AML/CTF purposes (including products and services), and harmonising with international regulatory best practice” can help the sector mature. (Australia’s Home Affairs and Cointelegraph)

  • Venezuela – Two developers accused of stealing roughly US$1 million worth of bitcoin from a crypto exchange were set free with the help of blockchain analytics data. (Coindesk)

  • Academic corner – Crypto-Finance, Law and Regulation – Governing an Emerging Ecosystem, by Joseph Lee (Routledge). The book investigates whether crypto-finance will cause a paradigm shift in regulation from a centralised model to a model based on distributed consensus. It explores the emergence of a decentralised and disintermediated crypto-market and investigates the way in which it can transform the financial markets. It examines three components of the financial market – technology, finance, and the law – and shows how their interrelationship dictates the structure of a crypto-market. It focuses on regulators’ enforcement policies and their jurisdiction over crypto-finance operators and participants.

  • Industry event – ISDA is organising the online conference Developments in Crypto Derivatives on 10 March.


  • What about DAOs, Forbes asked business strategist Roger L. Martin? “That sounds like a phenomenally dumb idea to me. I think it’s mainly massive hype. So there’s a tool that a bunch of very geeky people have come up with, they’re totally in love with, and they’re trying to find something useful to do with it.” Needless to say that many in the DAO space profoundly disagree with that view.

  • Meanwhile Aaron Wright (@awrigh01) tweeted: “The core use case for DAOs is not the pooling of capital. It’s coordination”.

  • Want to set up a DAO? Kali DAO offers template legal documents to help. Users can choose between draft legal documentation for a Delaware or Wyoming DAO LLC, for example, or a Swiss Verein. Users will still need to file the necessary paperwork and take care of all other formalities, however.


  • Law of Code podcast host Jacob Robinson spoke to Bennet Tomlin about the evolution of stablecoins, the relationship between Bitfinex & Tether, and what the future holds for Bitcoin. Listen on Apple or Spotify and subscribe to the Law of Code newsletter here.


  • South Korea will invest 223.7 billion Korean won (US$186m) in a ‘national metaverse’, which it hopes will help its companies and industries thrive and marks the first (as far as I’m aware) publicly-funded metaverse project in the world. The investment is part of a broader Digital New Deal, said Park Yungyu, head of communication and policy department at the ministry. “It is important to create a world-class metaverse ecosystem as the starting point to intensively foster a new hyper-connected industry,” Park added. (Cointelegraph)

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