Aug 23, 2019

Cryptocurrencies could help evade U.S. sanctions on Iran

Illustration: Aïda Amer/Axios

Iranian cryptocurrency developers have created a blockchain platform, IranRescueBit, to facilitate aid donations in Bitcoin, Ethereum and Litecoin — a move that threatens to undermine sanctions at the center of the Trump administration's "maximum pressure" campaign.

Why it matters: The platform's purported aim is to circumvent U.S. sanctions that prevented international donations from reaching the Iranian Red Crescent Society following damaging spring floods in Iran, but its scope appears likely to expand.

Where it stands: Iran could leverage cryptocurrencies, crypto exchanges and brokerages, and other cryptocurrency applications to evade sanctions and ease the financial strain on Iranian companies.

  • Yes, but: The U.S. Treasury Department announced in November 2018 that it is targeting cryptocurrency exchangers associated with Iranian cyber actors.
  • Meanwhile, the global cryptocurrency industry hopes to shed the perception that its applications and platforms are used by cyber criminals and for illicit purposes.

Background: Iran initially took a cautious approach to cryptocurrencies, whose decentralized and anonymous transactions have worried global regulators. But the launch of IranRescueBit suggests the regime has grown more permissive, even though the government has no reported involvement with the platform.

  • Iran clamped down on cryptocurrency mining in June after claiming the activity inflicted an inordinate strain on the state-subsidized electricity system.
  • In July, officials announced a domestically encrypted digital currency that would free up the frozen assets of local banks. It would be overseen by the Central Bank of Iran and backed by gold reserves.
  • Iran’s cabinet then ratified a bill on Aug. 4 clarifying that foreign cryptocurrencies are not legal tender and that the central bank would not recognize domestic transactions in cryptocurrencies.

What to watch: Despite an initially cautious approach, the Iranian government is likely to further embrace a cryptocurrency industry capable of disrupting sanctions.

  • The U.S. administration and Treasury will monitor how Iranian cyber actors use emerging cryptocurrency platforms, as the scope of the pressure campaign widens beyond fossil fuels to include digital assets.
  • Greater U.S. scrutiny of cryptocurrency applications in the Gulf region will force neighboring countries with fast-growing crypto industries, such as Bahrain and the United Arab Emirates, to strengthen controls on money laundering and terrorism financing.

Robert Mogielnicki is a resident scholar at the Arab Gulf States Institute in Washington.

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