Venezuela, Russia, and North Korea can utilize digital currencies to escape the sanctions squeeze. During the past week, experts have been arguing whether such scenario would pan out. That's why we decided to cover what sanctions precisely the US imposed on these countries, in which cases cryptocurrencies will help to evade them, and how many years it will take the nations to actually become economically independent.

Venezuela

Which sanctions?

The USA slapped sanctions on Venezuela at the end of August 2017. The sanctions have prohibited dealings in bonds and new debt from the Venezuelan government and its state oil company.

The sanctions have hit the country's already struggling economy even harder. First off, oil accounts for about 95% of Venezuela's export revenues. Secondly, the economic crisis has been rumbling on for a few years now. The citizens experience a shortage of basic goods and are forced to travel to neighboring Columbia to purchase them. In 2017, the country's currency, the bolivar, lost 96 percent of its value, leading to hyperinflation.

How to evade?

President Nicolas Maduro announced that Venezuela would launch a digital currency of its own, dubbed El Petro, to combat the crisis. The cryptocurrency will be backed by oil, gas, and diamond reserves. A blockchain that the currency will be built atop will be designed by country’s Ministry of Higher Education, Science, and Technology.

According to Maduro, a new digital currency will allow for country’s financial independence, yet uncertainty remains as to how it will work. The only thing President mentioned, though, was that it would help Venezuela attract foreign capital. It is also still unclear when the new currency will be put into circulation.

North Korea

Which sanctions?

In December last year, the US imposed sanctions on North Korea. They are aimed at banning about 90% of exports of refined products to North Korea. Notably, it is prohibited to sell more than 500,000 barrels a year. It is also forbidden to supply more than 4,000,000 barrels of crude oil to the country in one year's time. Moreover, all UN Member States must send migrant workers of North Korean descent back home by December 2019.

How to evade?

North Korea has not officially expressed its intent to evade sanctions with the use of cryptocurrencies. Such assumption was made by Bloomberg, who concluded it from FireEye’s (a computer security research company) report. According to the data provided, North Korean hackers have started to attack South Korean cryptocurrency exchange operators and related websites more often. They also hijacked an English-speaking crypto news outlet and collected bitcoins from its users with the use of the malware called WannaCry. With sanctions getting tighter and people gaining more exposure to crypto, South Korea will pay more attention to a neighboring country’s hackers, FireEye says.

According to the 2016 report from the International Cyber Policy Centre at the Australian Strategic Policy Institute, the North Korea’s Reconnaissance General Bureau employed an estimated 6,000 officers engaged in cyber operations. What’s more, the Bureau directly reports to Kim Jong Un. Along with that, Bloomberg has also noted that the attacks on South Korean exchanges operators are unnaturally corresponding with the bitcoin’s rallies. Experts suspect that the country might be purposefully lowering the exchange rate to buy bitcoin at a dip.

Russia

Which sanctions?

The US has been adopting sanctions against Russia for a while now. Diplomatic relations between two countries have been worsening gradually since 2014. The majority of sanctions are related to eliminating cooperation between Russian and foreign companies, freezing bank accounts, and ceasing service operations, not to mention the Magnitsky Act. Besides, in October 2017, the U.S. Department of State published a list comprising 39 Russian companies, cooperation with which could lead to contractors having sanctions imposed on them. New restrictions may come into force as soon as February this year. If violated, the contractor—either an individual or an organization—will face charges regardless their country of origin.

How to evade?

At the meeting of the presidential administration on the legal status and regulation of cryptocurrencies, President Putin's adviser Sergei Glazyev suggested that the country use cryptocurrencies to circumvent sanctions. He also stated that the sanctions against Russia had created an “objective need” for the digital currencies. Glazyev has advocated creating a cryptoruble as well.

Is crypto a way to bypass sanctions?

According to the experts, not really. Legal entities which are subject to the laws of the US cannot cooperate with those under sanctions or engage in business relationships with the residents of countries facing economic, commercial, and financial embargo or other restrictions. The implementation of rules is controlled by a specialized body, the Office of Foreign Assets Control (OFAC).

As the law puts it, "a person who willfully commits, willfully attempts to commit, or willfully conspires to commit, or aids or abets in the commission of, an unlawful act described in subsection (a) shall, upon conviction, be fined not more than $1,000,000, or if a natural person, may be imprisoned for not more than 20 years, or both."

Note: all the world’s digital tokens are worth about $520 billion, according to CoinMarketCap, which is only about one-tenth of the daily foreign exchange market. “Think about how many U.S. dollars are in circulation and how much each bitcoin would have to be worth to match that value—it would be a ludicrously big number,” said Tom Uren, a visiting fellow at the Australian Strategic Policy Institute’s International Cyber Policy Center. “In the long term, that’s possible, but we are talking decades and decades. Cash isn’t going away anytime soon.”

The U.S. Department of State might amend the sanctions law

Even if there are loopholes allowing citizens to work with companies under sanctions, the U.S. officials could revisit their sanctions policies.

U.S. Senators Marco Rubio and Bob Menendez even published an open letter addressed to Treasury Department Secretary Steve Mnuchin, raising concern about Russia, Venezuela, and North Korea planning to use cryptocurrencies to evade sanctions levied by the United States.

"We write to express our concerns regarding Venezuelan President Nicolás Maduro's purported development of a cryptocurrency for the explicit purpose of evading sanctions levied by the United States," wrote the Senators.

"We have serious doubts about whether Venezuela has the capacity to launch a cryptocurrency, but regardless, it is imperative that the U.S. Treasury Department is equipped with tools and enforcement mechanisms to combat the use of cryptocurrency to evade U.S. sanctions in general, and in this case in particular." In their letter, the lawmakers included a series of questions and asked Mnuchin to respond to them by the end of the month.

One of those goes: "Under current authorities, does the Department have the ability to modify existing sanctions?"