For the first time ever, the U.S. Department of the Treasury is taking aim at bitcoin miners operating in Russia as the country’s war on Ukraine approaches its third month.
In its latest round of sanctions, the U.S. Treasury Department says that it is taking action against companies in Russia’s virtual currency mining industry.
According to data from Cambridge University, Russia is the world’s third biggest destination for bitcoin mining.
“By operating vast server farms that sell virtual currency mining capacity internationally, these companies help Russia monetize its natural resources,” Under Secretary for Terrorism and Financial Intelligence Brian Nelson said in a press release released early Wednesday afternoon.
“Russia has a comparative advantage in crypto mining due to energy resources and a cold climate. However, mining companies rely on imported computer equipment and fiat payments, which makes them vulnerable to sanctions,” continued the statement.
The United States views income from the crypto mining industry as a potential threat to the efficacy of its sanctions regime, with the Treasury saying that it is committed to ensuring that no asset becomes a mechanism for the Putin regime to offset the impact of sanctions.
Among the companies targeted by U.S. sanctions is Bitriver, which was founded in 2017, and as the name implies, operates its mining farms with hydroelectric power. The mining firm employs over 200 full-time staff in three offices across Russia, according to its website.
The Office of Foreign Assets Control has singled out 10 Russia-based subsidiaries of Bitriver in its most recent raft of sanctions on businesses and individuals helping Russia soften the blow of economic penalties.
CNBC reached out to Bitriver CEO Igor Runets for comment and did not immediately hear back.
The worry is that similar to how Iran reportedly uses bitcoin mining to evade sanctions, Russia could also channel its vast energy resources toward crypto mining operations as a way to circumvent the West’s economic blockade.
The International Monetary Fund warns in a new report that bitcoin could allow countries such as Russia to monetize energy resources, “some of which cannot be exported due to sanctions.”
The US Congress has voted to ban imports of oil, gas and coal from Russia, while the European Union is considering similar measures, despite the bloc’s high level of dependency on Moscow’s resources. The EU has proposed banning Russian coal and oil sanctions are also in the works.
The IMF warns that this kind of monetization of energy resources via crypto mining happens “directly on blockchains and outside the financial system where the sanctions are implemented” and that miners “generate revenues directly from users that pay transaction fees to miners,” which could include sanctioned governments.
But keep in mind, the scale of mining operations is dwarfed by the magnitude of sanctions being imposed on Russia by the West.
The IMF notes that the share of mining in sanctioned countries is “relatively contained.”
The organization estimates that the monthly average of all bitcoin mining revenues last year was about $1.4 billion, of which Russian miners could have captured close to 11% and Iranian miners, 3%.