Authoritarian states may not be may not be that interested in payments networks they can’t control
The effect of cryptocurrency technology on the U.S.’s ability to enforce sanctions is a topic that has been receiving more and more government attention. Mostly it has been a reaction to Venezuela’s attempt to create an oil-backed token called the Petro. This scheme has led the White House to issue an executive order, and Congress to consider a bill codifying that order. The Treasury department also recently issued guidance emphasizing the sanctions obligations of digital currency intermediaries with regard to the sanctions on Iran.
The use of cryptocurrency to evade sanctions has dangerous potential that should be taken very seriously. That said, the real risk to sanctions enforcement comes not from technology, but from an escalating challenge to the U.S.-dominated international payments system. According to a insightful recent article by Yaya Fanusie, a former CIA analyst, and director of analysis at the Center on Sanctions and Illicit Finance at the Foundation for Defense of Democracies,[T]he greatest sanctions risk is a long term one; that nation-states that desire to displace the U.S. dollar as a global trading currency might do so slowly, by creating a functioning parallel value-transfer system that does not move U.S. dollars or go through New York City. This would be an alternative to the SWIFT infrastructure that is essential to transferring funds today. Such a system would not respond to the current sanctions enforcement playbook.
In effect, the threat to the U.S.’s ability to enforce sanctions comes not from blockchain technology, but from the desire to end the U.S.’s dominance of international payments and settlement. Even European states like France, Germany, and the UK have agreed to work with Russia and China to develop a payments system that routes around U.S. sanctions on Iran. Given such a drive, what technology they choose t...