Crypto Sanctions Scrutiny Rises Amid Russian Invasion of Ukraine | Kharon The Kharon Brief

Crypto Sanctions Scrutiny Rises Amid Russian Invasion of Ukraine

A token developed by a Russian blockchain entrepreneur with ties to a man behind sanctioned cryptocurrency exchanges has jumped in value in recent days

(Source: Social media)

By James Disalvatore, Nick Grothaus, Samuel Rubenfeld, and Joshua Shrager

March 1, 2022

Waves Enterprise, a Russia-based blockchain company, works closely with Russian government entities, and its founder is an associate of one of the primary individuals behind cryptocurrency exchanges sanctioned by the U.S. for processing ransomware payments, according to a Kharon investigation. 

Waves Enterprise is just one of a handful of companies and platforms bearing the "Waves" name founded by Aleksandr "Sasha" Ivanov, a Russian cryptocurrency entrepreneur. In 2016, Ivanov founded the Waves blockchain platform, a "community-based stack of decentralized open-source technologies," that utilizes the eponymous WAVES token, according to its website. Ivanov then founded Waves Enterprise in 2017 and serves as its director general, records show.

Since the Russian invasion of Ukraine, Waves has seen the value of its token double, outpacing most of the crypto market over the past seven days. The price of a WAVES token was around USD 8.60 on Feb. 23, 2022, but it has risen above USD 18.00 as of March 1, an increase of more than 100 percent, according to CoinMarketCap, which tracks cryptocurrency trading. 

The WAVES token has a market cap of more than USD 1.9 billion. Its 24 hour trade volume regularly reaches into the hundreds of millions of dollars and, until recently, the token’s price had broadly followed the volatile trading cycle of the general cryptocurrency market, Kharon found.

Waves Enterprise is a “technology company formed to develop a hybrid enterprise blockchain platform that unites public and private network approaches,” according to its website. The firm’s other products and services include facial recognition, blockchain based voting and security audits of “​​smart contracts and applied solutions built by third-party developers.” 

Clients listed on Waves Enterprise’s website are almost exclusively Russian, including several companies and government entities under U.S. and western sanctions, according to a review by Kharon. 

Among them are Russian lender Sberbank and the state defense bank Promsvyazbank, which are named as “partners and clients.” Others included Rostelecom, the national telecommunications operator, and the state-owned space agency Roscosmos.

In the days since Russia invaded Ukraine, the U.S. responded by blocking Sberbank’s access to the U.S. financial system and the West banded together to impose sanctions on Promsvyazbank. Waves Enterprise appears to have removed references to Sberbank and Promsvyazbank from its website in recent days, Kharon found.

Additional financial measures in response to the invasion are under consideration. 

Among them, in Washington, are novel sanctions against Russia’s access to cryptocurrency markets, the Wall Street Journal reported, potentially by designating specific exchanges or platforms. The U.S. administration is asking cryptocurrency exchanges to ensure Russian individuals and organizations aren’t using them to avoid sanctions, people familiar with the matter told Bloomberg News. Recent U.S. sanctions focused on cryptocurrency exchanges have thus far concerned the processing of ransomware payments, however.

Several commentators have speculated about the role cryptocurrency could play amid the invasion of Ukraine. Some have said that wealthy Russians, facing unprecedented multilateral sanctions targeting their assets, could use cryptocurrencies to shield and hide their holdings from the West. Others argue, however, the ability to bypass sanctions is limited

Binance, one of the world’s largest virtual currency exchanges, said Monday it would block the accounts of sanctioned Russian individuals, but would not freeze all Russian users.

In an October advisory on sanctions compliance for virtual currencies, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) advised companies in the industry, including technology firms, exchangers, administrators, miners and wallet providers, as well as more traditional financial institutions, to develop a tailored risk-based compliance program. As part of the advisory, OFAC advised companies with potential exposure to implement internal controls, including the use of tools for screening and investigations.

For his part, Ivanov, the Waves founder, has ties to Egor Petukhovsky, the largest shareholder of SUEX OTC s.r.o. and a former manager of Chatex, according to records reviewed by Kharon. Those virtual currency exchanges were both sanctioned by the U.S. Treasury Department in 2021 for facilitating ransomware payments. There is no indication that Ivanov or Waves Enterprise have committed any wrongdoing in relation to the Treasury Department’s actions. 

On his personal blog, Petukhovsky had referred to Ivanov as a member of his “circle,” and Petukhovsky credited Ivanov in a 2020 Russian media interview with bringing him into the cryptocurrency sector. Ivanov was also a member of the advisory board of Tbilisi-based payment provider VISO, where Petukhovsky was a senior manager.  

Waves tokens were available for purchase through Chatex before it was sanctioned by the U.S. government. Chatex had allowed users to receive, exchange, or store cryptocurrency through a smartphone but the firm canceled a planned sale of its own token in the wake of the U.S. sanctions designation, according to an announcement on its website.

There is at least one example of Waves Enterprise finding a home in the U.S: An Ohio-based early childhood education provider turned to the company for its technology to develop a reward program to motivate its employees. The program was originally inspired by the “video game achievement model,” but the academy also wanted the ability to exchange real-world goods, an executive of the education provider said in a press release from Waves Enterprise.

Update (March 11, 2022): According to a Bloomberg article published on March 11, Ivanov claims that as of last summer, Waves’ development team started moving out of Russia and the main office and the majority of the Waves staff are now located in Miami, FL. Ivanov told Bloomberg that he personally holds both Ukrainian and Russian citizenship. 

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