The European Council adopted a comprehensive 19th sanctions package on Thursday. It introduces numerous further restrictive economic measures against key sectors financing Russia’s war of aggression against Ukraine. The sanctions target the energy, finance, and military-industrial complex sectors. For the first time, blockchain-based digital payment instruments are also included.
The latest developments have shown by the European heads of state and government that Russia is increasingly using cryptocurrencies to circumvent existing sanctions. In this context, the stablecoin A7A5, which was created “with state Russian support,” has become an important instrument for financing activities that support the war.
In focus: A7A5 and the circumvention of sanctions
To prevent this circumvention strategy, the Council has introduced several A7A5-related restrictions as part of the new package: The sanctions affect, for example, the developer of A7A5, the Kyrgyz issuer of the coin, and the operator of a trading platform on which substantial amounts of A7A5 are traded. Transactions with this stablecoin are now prohibited throughout the EU. For the first time, the new measures explicitly prohibit the use of this specific cryptocurrency in the EU.
A7A5 is pegged to the Russian ruble. The stablecoin is used extensively for transactions. According to reports, over one billion US dollars have already been transferred per day. This facilitates cross-border payments, indirectly supporting the Russian war economy as an alternative to common currencies.
The cryptocurrency was developed by a company called A7, which is associated with the sanctioned Russian state-owned company Promsvyazbank (PSB) and Moldovan banker Ilan Shor, who is also on sanction lists.
Key measures not only in the financial sector
The sanctions package marks a significant evolution of the EU sanctions regime. By addressing stablecoins and offshore exchanges, the integrity of the financial sanctions framework is to be strengthened. EU operators are now prohibited from offering crypto services and certain other FinTech services that enable Russia to develop its own financial infrastructure and circumvent sanctions. The EU prohibits its operators from cooperating with the Russian national payment card system Mir and the Fast Payments System SBP.
Furthermore, sanctions are being extended directly to a cryptocurrency exchange in Paraguay that has played a key role in circumventing existing restrictions. Through these measures, the EU aims to close loopholes that have so far opened up, particularly through digital assets. The EU Commission had initially considered even more far-reaching sanctions in the crypto sector. However, decentralized platforms and private crypto wallets are difficult to control.
The package requires prior authorization for all services provided to the Russian government. Furthermore, it restricts the provision of services related to AI, high-performance computing, and commercial spaceflight to Russian companies and the government. In addition, there is an import ban on Russian liquefied natural gas (LNG) from January 1, 2027, for long-term contracts and within six months for short-term contracts. A complete transaction ban for Rosneft and Gazprom Neft is also included. The US has just imposed sanctions on the Russian oil companies Rosneft and Lukoil, as well as various subsidiaries.
(mack)