Update (February 24, 2022, 21:00 UTC): Shortly after this article was published, Biden did announce the expansion of sanctions.

The United States is moving to cut off the offshore funds of Russian oligarchs and officials and their ability to trade within the global financial system after Russian forces invaded Ukraine Wednesday night.

Unlike previous sanctions, the new measures could expel Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), an international messaging service used by banks to send money around the world. While it is conceivable that cryptocurrencies may provide an alternative means of transaction for individuals or organizations, the Russian government's lukewarm stance on the technology and other factors may limit its use for this purpose.

In a public statement, he said U.S. President Joe Biden will announce new sanctions against Russia on Thursday, hoping that economic penalties will convince Russian President Vladimir Putin to withdraw his troops from Ukraine and stop the war effort.

By doing so, the United States and the European Union are effectively trying to prevent these officials and oligarchs from making deals with political parties anywhere in the world. The move comes hours after Russian forces launched attacks on several Ukrainian cities and military bases, including the country's capital, Kiev.

Russia first announced it would send "peacekeepers" into the eastern Ukraine regions of Donetsk and Luhansk, which Putin on Monday recognized as separate entities. The U.S., Canada, Japan, the European Union and several other countries announced initial lists of sanctions after the incursion, targeting specific individuals or entities.

Wednesday's attack, however, dwarfed the scale of Monday's invasion, prompting Biden to announce that further sanctions would be imposed.

Dalip Singh, deputy national security adviser to the Ministry of International Economy, told reporters that the initial sanctions package was "designed to impose significant direct costs on Russia's largest financial institutions and state-owned enterprises.

Singh says this initial package can be modified as needed.

"We are also prepared to impose strong export controls as part of our response package," he said at a White House news conference. "Both financial sanctions and export controls deny Russia what it needs and cannot get from anywhere other than the United States or our allies and partners. Financial sanctions deny foreign capital to Russia, and export controls deny Russia the critical technological investments it needs to diversify its economy and achieve Putin's strategic ambitions in aerospace, defense and high technology."

Andrew Jacobson, a partner at the law firm Seward & Kissel, told CoinDesk that he expects further sanctions against Russia's largest banks: VTB Bank, SberBank and Gazprombank. Other sanctions could target Russia's energy sector and oligarchs, especially those who own assets such as yachts overseas.

He said the Treasury Department's Office of Foreign Assets Control (OFAC), which oversees U.S. sanctions, has the ability to place ships and entities and people on its list.

Sanctions against oligarchs may include actions against their adult children and all assets located outside of Russia. These oligarchs constitute a key source of Putin's power base.

"I think the most important thing is how U.S. companies will implement the sanctions into their compliance programs," Jacobson said. "I think there are going to be some very big challenges in the coming months deciphering the new rules that are coming in and understanding the really complex ownership structures and how those restrictions apply to those ownership structures."

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The US has not yet tried to isolate Russia from SWIFT, the information network that underpins global financial transactions.

The expulsion of Russia from SWIFT means that it will be difficult for the country to trade with any non-Russian financial institution.

There is precedent: SWIFT cut off services to some Iranian banks in 2012, preventing the country from participating in financial transactions with the rest of the world. According to Reuters, local business operators said at the time that the move would "make our lives more difficult.

White House officials said expelling Russia from SWIFT remains "on the table" after earlier sanctions were announced. Singer said it would not be in the initial inventory.

"There are other tough measures that we can take that our allies and partners are ready to take in tandem with us and that don't have the same spillover effects," he said. "But we will always monitor those options and we will revise our judgment over time."

British Prime Minister Boris Johnson called for the expulsion of Russia from SWIFT in a speech to the G7 meeting on Thursday.

Jacobson thinks it is unlikely that SWIFT will be cut off at this time.

"I don't know that taking them out of SWIFT would really do much more. SWIFT is just a messaging system. It's an inconvenience in the short term, but ultimately in the long term, countries that are cut off from SWIFT still find ways to operate in the global financial system and operate domestically," he said.

The role of cryptocurrencies

While the headlines suggest that cryptocurrencies may be used to bypass Russian sanctions, Jacobson does not see this as a possible solution.

He said authoritarian regimes have a hard time adopting decentralized assets, and Russia in particular doesn't like Bitcoin, even though Putin once met Vitalik Buterin, the creator of Ether. A few weeks ago, the country's central bank tried to ban cryptocurrencies.

"I think Russia may be considering using Bitcoin or other cryptocurrencies to evade sanctions, but on the other hand, may be concerned about these cryptocurrencies becoming too popular in their own country because it would affect their own control over their own monetary system and therefore their power," he said.

Caroline Malcolm, head of international policy at Chainalysis, told CoinDesk that the blockchain analytics firm hasn't seen any unusual activity on Russian cryptocurrency exchanges in the past few days.

Even if some do choose to turn to cryptocurrencies, it is unclear whether they will be able to effectively bypass sanctions using decentralized assets. Companies may monitor sanctioned wallets for any transactions, or refuse to deal with these addresses altogether.

"We've seen in past sanctions that you have examples of wallet addresses being named as sanctioned entities, which allows Chainalysis to send alerts for our customers, whether they're government or from industry," Malcolm said. "So if they have transactions that, you know, intersect with sanctioned entities, they will be able to see those transactions and receive alerts immediately."

Chen Arad of Solidus Labs says governments increasingly have the tools they need to "control cryptocurrencies.

He said cryptocurrencies are being discussed as a tool to get around sanctions, a sign that cryptocurrencies are maturing, but the industry has also grown to the point where financial regulators can monitor the sector.

He said, "I think the regulators have developed the ability to have recognized that there are ways to control it, and the industry has recognized that it will control it in one way or another."

Update (February 24, 2022, 21:00 UTC): Updated title and subtitle.


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