Cryptocurrency players in Singapore, keen to preserve their ability to operate in the financial hub, are scouring their capital flows for any possible Russian links.
The city-state on Saturday spearheaded rare action in Southeast Asia to sanction Russia for its invasion of Ukraine, by announcing it would ban financial institutions from dealing with a list of Russian entities.
This has piled pressure on crypto operators to comb through their business diligently for links to Russia—aware that any misstep may jeopardize their approval to operate in Singapore from regulators who were already closely watching the emerging industry for suspicious activities.
Crypto payment solutions provider Triple A said it has updated its sanction list after receiving notice from the Monetary Authority of Singapore, the city-state’s central bank and financial regulator, on the country’s stance on Russian dealings.
“We update mostly for new clients, so new clients that we are now onboarding, where we are making sure that we are not [bringing] on entities or businesses or individuals which are affected by those sanctions,” the company’s CEO Eric Barbier told Nikkei Asia.
“We are also going back to our existing clients—all the clients that we have onboarded in the past—and we are making sure that none of the entities themselves or individuals who may be controlling those entities are on the sanction list,” he added.
But crypto’s reputation for facilitating anonymous transactions using the decentralized blockchain technology it is based on has raised questions over the effectiveness of sanctions.
Crypto assets traded through exchanges can track individuals based on their registered bank accounts. Even so, many major exchanges have no physical headquarters or fixed location, potentially enabling them to slip through global regulatory nets.
“Crypto, being decentralized, is less vulnerable to government regulations than fiat currencies,” said George Monaghan, thematic analyst at GlobalData, a data and analytics company. “It seems that Russians can still make crypto transactions.”
Shaun Leong, partner at Singapore law practice Withers KhattarWong, points out, however, that while cryptocurrency users can generally maintain anonymity, the activities they engage in are not private, and are actually “quite transparent” as transactions are recorded on blockchain.
“The blockchain never forgets, and its immutability means that users invariably leave behind a record that can be traced, even if the cryptocurrency has passed through several layers of ownership,” he told Nikkei.
The trail that blockchain leaves means crypto players have less of an excuse to be lax on enforcement of the sanctions set out by regulators, prompting digital asset players to keep careful watch over their activities.
Anson Zeall, emeritus-chair of the Association of Cryptocurrency and Blockchain Enterprises and Start-ups Singapore—a lobby outfit for over 400 businesses—argues that Singapore’s stringent regulatory requirements for crypto operators act as safeguards against banned transactions slipping through sanctions.
In order for crypto companies to legally operate for the long run in the financial hub, they have to obtain a license after proving to regulators that they have measures in place to carry out proper customer due diligence, conduct regular account reviews, and monitor and report suspicious transactions.
Zeall noted, however, that the sanctions mean crypto and digital asset players would need to consistently keep on guard. “The only difficulty is that the compliance would now need to ramp up the work, which is already a lot,” he explained.
“Do they have enough resources to check all these transactions?” Zeall asked. “So, let’s say resource was not a problem, then yes, I think the Singapore-licensed companies would be able to check all the transactions.”
Firms dealing with cryptocurrency in Singapore run the gamut from exchange platforms to investment managers and financial advisers looking after virtual asset portfolios, to business-to-business outfits helping corporate clients accept payments using digital tokens.
Scores of them have set up in the city-state hoping to use the financial hub as a launchpad for pursuing business in Asia. So for many of these players, immediate priorities have typically not centered around Russia as a focus for their operations.
Luno, which offers products and services to buy and store cryptocurrencies like bitcoin and Ethereum, said most crypto businesses in Singapore are unlikely to have direct business relationships with Russia-based individuals or entities.
Sherry Goh, country manager for Singapore at the London-based company, said this means that the city-state’s overall crypto industry is unlikely to see any material impact from the sanctions.
“We will impose measures to ensure that we detect and prevent transactions to or from sanctioned persons, entities, and geographies,” she told Nikkei. “We have a strong emphasis on sanctions compliance and on mitigating the risk that our services could be used to circumvent financial sanctions.”
Singapore-based DBS Group Holdings, Southeast Asia’s largest lender, operates a digital exchange majority-owned by its subsidiary DBS Finnovation. DBS said banks maintain systems and processes to screen customers, payments, and other transactions for sanctions impact.
“DBS complies with all applicable sanctions—including Singapore’s recent actions—which are incorporated into these systems and processes to ensure compliance and to detect attempts at evasion,” its spokesperson told Nikkei.
Singapore’s sanctions in the past week banned all financial institutions in Singapore—from lenders and insurers to securities exchanges and payment service providers—from conducting transactions or establishing business relationships with Russia’s VTB Bank, Vnesheconombank (VEB), Promsvyazbank, and Bank Rossiya.
Financial institutions operating in the city-state are also barred from providing financial services that facilitate fundraising for the Russian government, the central bank of Russia or entities controlled by them.
The sanctions cover all transactions that involve cryptocurrencies and extend to payment and settlement of dealings that relate to digital assets, such as non-fungible tokens.
Like Singapore, the US, Europe, and now Japan are mulling measures to ensure that cryptocurrencies are not used as a tool for dodging financial sanctions imposed on Russia.
Singapore-based private market exchange ADDX, which last year added an institutional-grade cryptocurrency fund as an investment product, said the fund has not been impacted by the sanctions on Russia.
“We perform ‘know your customer’ and anti-money laundering checks on all our investors, and we therefore do not handle any anonymous transactions,” ADDX’s CEO Oi-Yee Choo told Nikkei. “We will continue to monitor the situation as it evolves, to ensure we constantly stay compliant.”