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28 March 2022

Cryptocurrencies and international sanctions

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By Hana Erbsová, Attorney-at-Law, HAVEL & PARTNERS

Unfortunately, it is no longer just technology and taxes but more recently also the current war in Ukraine that impact the world of cryptocurrencies.

Virtual assets, or crypto assets, which include so-called cryptocurrencies, are currently often mentioned in connection with international sanctions against the Russian Federation. Let us remind you, therefore, that by its decision of 9 March 2022, the Council of the EU explained that the prohibition to grant loans and credits in relation to sanctioned goods and technologies and the prohibition to grant loans and credits to entities and persons listed in the EU Sanctions Regulation applies to any means by which credit or loans can be granted, including crypto assets.

The manner in which this clarification has been made (by way of interpretation) suggests that the same approach should be taken in applying the international sanction banning loans and credits not only to Russia but also to other countries and persons sanctioned by the European Union. That is to say, loans and credit in the form of crypto assets should not be granted to them either.

By contrast, the extension of the concept of “transferable securities” to include cryptocurrencies applies only to sanctions applied to Russia until the Council similarly amends the legislation imposing sanctions on other sanctioned countries and entities.

Sanctions specifically targeting cryptocurrencies have not yet been adopted. However, this certainly does not mean that it would be possible to avoid or circumvent existing sanctions.

Trading with or providing any payout (including crypto assets) to recipients linked to Russia is generally restricted by Article 11 of Regulation (EU) No. 833/2014 as in force on 14 March 2022. This Article prohibits the satisfaction of any claim arising out of a contract or transaction the performance or completion of which has been affected, directly or indirectly, in whole or in part, by the measures imposed under this Regulation and which is made by any “Russian person, entity, or body” (whether on its own behalf, through an agent, or on behalf of a third party).

Therefore, anyone who believes that a payout they are expected to provide may fall within the scope of the aforementioned Article is, in principle, obliged to notify the Financial Analytical Office pursuant to the Act on the Implementation of International Sanctions (Act No. 69/2006 Sb). The Office will then decide whether the assets can be surrendered (whether the payment can be made) or how it will be treated.

The above obligation thus also applies, for example, to operators of cryptocurrency exchanges and bureaus of exchange and providers of electronic wallets who suspect that a “Russian person, entity or body” has or may claim crypto assets exchanged, traded or deposited with them. The burden of proving that the transaction will not violate an international sanction lies with the person requesting the payout.

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