Enhancing the EU Response to Crypto-Enabled Sanctions Circumvention

Crypto is no longer a peripheral feature of sanctions evasion. Nor is it a self-contained world of wallets, tokens and exchanges that can be addressed separately from the wider architecture of illicit finance. For Russia, Iran and other sanctioned actors, crypto-assets are increasingly embedded in broader systems of procurement, payment, settlement and value transfer. They are used alongside the traditional suite of tools favoured by sanctions evaders, including shell companies, trade-based evasion, third-country intermediaries, money service businesses and professional enablers.

The EU has already begun to recognise this. Recent Russia sanctions packages have included measures targeting crypto-assets, crypto-service providers and Russia-linked instruments such as A7A5. And recent proposals for a 21st Russia sanctions package suggest that this trajectory is continuing, with the European Commission signalling further action against crypto platforms and, for the first time, the possibility of a full third-country ban for crypto-asset services linked to Russia’s circumvention activity. But the direction of travel, while welcome, does not remove the need for a more operationally focused strategy.

But the challenge is moving faster than the policy response. Russia’s networks adapt quickly, exploit gaps between jurisdictions, and combine traditional and digital finance in ways that are difficult to capture through entity-by-entity designation alone.

The next phase of the EU response should therefore be built around a simple proposition: crypto-enabled sanctions circumvention is an infrastructure challenge. The task is not merely to identify which sanctioned actor used which wallet. It is to understand, target and disrupt the infrastructure that allows sanctioned actors to turn crypto into usable financial power.

Against this background, in early June, the Centre for Finance and Security at RUSI convened a roundtable discussion of EU and UK policymakers and crypto experts at RUSI Europe in Brussels to consider what steps the EU could take next and what lessons can be learned from recent crypto sanctions actions by the UK.

Crypto as Supporting Infrastructure

The funding and resourcing of Russia’s war in Ukraine still relies heavily on conventional financial channels, trade networks, banking relationships, front companies and third-country jurisdictions. Crypto is not replacing these mechanisms but it is supporting them by providing alternatives to the ‘offline’ infrastructure that has been disrupted by more than four years of G7 sanctions.

This distinction matters. If policymakers treat crypto as a separate evasion universe, they risk focusing too narrowly on individual tokens, wallet addresses or exchanges. But if crypto is understood as part of a broader evasion architecture, the policy objective changes and aligns with Russia’s use.

In the Russian case, crypto can support cross-border settlement, compensate intermediaries, provide liquidity to procurement networks, move value from roubles into more useful currencies, and reduce dependence on heavily scrutinised banking channels. These mechanisms may be linked to military procurement or support for hybrid activity and influence operations or the movement of funds through alternative payment networks. The same logic applies, with different characteristics, to Iran, where decades of sanctions pressure have produced a highly adaptive financial ecosystem that can incorporate crypto as another tool of evasion.

The Shift to Infrastructure Targeting

The UK’s recent crypto-related Russia sanctions provide a useful case study. What is notable is not simply that crypto exchanges were designated, but that the package sought to target elements of the ecosystem that enable Russia-linked financial flows. This included exchanges with Russia-facing business, links to designated actors, exposure to Garantex and Grinex, and connections to the wider A7 payments network.

The designation by the UK of a major exchange such as HTX is significant because it tests where sanctions can bite in the crypto ecosystem. On-chain transactions cannot be stopped in the same way that a correspondent bank can block a payment. But exchanges still need users, liquidity, fiat currency access, counterparties, app distribution, payment processors and – perhaps most importantly – confidence. Sanctions can therefore have impact where crypto firms intersect with the formal economy and reputation-sensitive infrastructure.

Early signs from the UK case are instructive. Major exchanges responded quickly; some users sought to withdraw or reroute funds; analytics providers updated risk scoring; and payment processors and platforms reassessed exposure. The designation also created reputational pressure, forcing the exchange to respond publicly. That does not mean the network is permanently disrupted. As with all sanctions designations, new financial channels and platform migration is likely. But the early indications from the UK action are clear: sanctions can be effective when they target the points at which crypto activity depends on wider financial, technological and reputational infrastructure.

Restricting Liquidity

The A7 network is central to this debate and should be understood not simply as a crypto project but as core to Russia’s alternative financial system infrastructure: a mechanism for supporting cross-border transactions, moving value through third countries, and reducing the impact of Western financial restrictions.

The A7A5 token illustrates the point. The existence of a token is not, by itself, the main issue. Tokens are easy to create. The real question is whether these tokens have liquidity and convertibility. Can they be exchanged into a US dollar stablecoin such as Tether, US dollars, renminbi or another usable currency? Can they move through exchanges or brokers into payments for goods, services or procurement? Can they be accepted by counterparties beyond the immediate network?

Just as with a ‘TradFi’ bank, this makes liquidity the central vulnerability. A Russian-linked token that can be converted into stablecoins or fiat through third-country exchanges presents a material sanctions-evasion risk. The EU response should therefore focus less on the mere existence of instruments such as A7A5 and other rouble-backed tokens, and more on the ecosystem that allows them to operate.

That means mapping and targeting the conversion points including exchanges, liquidity providers, brokers, banking partners, payment agents and jurisdictions that allow roubles or Russia-linked value to become usable external purchasing power. It also means examining the role of third-country banks and state-linked entities, particularly where they bridge crypto activity and conventional settlement.

The Third-Country Challenge

Crypto-enabled sanctions circumvention thrives in jurisdictions where regulation is weak, supervision is uneven, corporate structures are opaque or political incentives favour cooperation with Russia. Yet the jurisdictional question is complex. Many crypto entities are – to borrow a phrase – ‘citizens of nowhere’. They may be registered in one jurisdiction, operating from another, serving users in a third, and maintaining infrastructure across several more.

For the EU, this requires a more differentiated third-country strategy. In some cases, public designation may be the right tool. In others, supervisory or diplomatic engagement with partner countries that are ill-equipped to supervise their crypto-industry may be more effective leveraging, for example, the pressure exerted by the global financial crime watchdog the Financial Action Task Force and its scrutiny of the integrity of crypto supervision.

Kyrgyzstan is a particularly important case because of its apparent role in A7-linked activity. But the challenge is wider. If A7 or similar networks seek to continue their expansion into Africa, the Caucasus, Central Asia or the Gulf, the EU will need to act robustly and in anticipation. Slow, cautious engagement may allow networks to embed themselves, develop local political protection and become harder to remove. The EU should therefore develop a standing watchlist of jurisdictions, corporate structures and financial institutions associated with Russian alternative payment infrastructure and ensure that countries are on notice of the implications should they allow these networks to take root.

Stablecoins Should Take Greater Responsibility

Stablecoins are central to confronting the evasion challenge as they often provide the bridge between volatile crypto-assets, local currencies and the dollar-based financial system. For sanctioned actors, the appeal is obvious: stablecoins can provide speed, liquidity, cross-border reach and access to dollar-denominated value without using a bank account in the conventional way.

But stablecoin ecosystems are not monolithic. Issuers may have direct customers with whom they maintain a formal relationship, but many users interact with stablecoins on secondary markets through exchanges, brokers or decentralised platforms. This distinction matters for sanctions implementation. The issuer may be able to freeze assets in some circumstances, but it may not have a direct relationship with every user of the token. Despite this, and although exchanges and other liquidity providers play a central role in limiting sanctions evasion, stablecoin issuers should not be allowed a free pass and the EU should exert greater pressure on issuers to enforce greater integrity on their clients, just as just as the issuers and gatekeepers of fiat US dollar access use that leverage to uphold standards and systemic integrity.

The EU should also develop a clearer sanctions framework for stablecoin convertibility and responsibility. This should ask: where are Russia-linked instruments being converted into USDT or other stablecoins? Which platforms provide liquidity? Which brokers facilitate exchange? Which counterparties redeem or off-ramp funds into fiat? And what obligations should apply when stablecoin liquidity becomes a core component of sanctions evasion?

A More Ambitious EU Response

The EU has the tools to respond more effectively, but they need to be combined more strategically. The next phase should therefore include five elements.

First, the EU should adopt an infrastructure-targeting mindset. This means focusing on exchanges, brokers, liquidity providers, payment agents, banking links and third-country nodes that make crypto useful for sanctioned actors.

Second, it should prioritise liquidity and convertibility. The most important question is not whether a token exists, but whether it can be converted into usable purchasing power.

Third, it should finally find a way to accelerate designation and implementation cycles. Crypto networks move quickly; sanctions packages and technical guidance need to move faster.

Fourth, it should build structured public-private dialogue with analytics firms, exchanges, stablecoin issuers, banks and payment firms. The oil price cap showed that novel sanctions tools require sustained industry engagement. Crypto sanctions require the same.

Fifth, it should coordinate closely with the UK and US. Divergent listings, inconsistent guidance and uneven enforcement create seams that sanctioned actors exploit. Coordinated action against infrastructure, especially where fiat access is involved, is far more likely to produce disruption.

Crypto-enabled sanctions circumvention will not be solved by merely designating wallets. Nor will it be solved by treating crypto as a niche technical problem. The challenge is financial infrastructure: who provides liquidity, who enables conversion, who maintains access to the formal economy, and which jurisdictions allow these networks to operate.

The EU has already begun to respond, with the proposed 21st package showing intent. But Russia and other sanctioned actors are moving faster. To keep pace, the EU must shift from reactive listing to proactive disruption. That means targeting the infrastructure that allows crypto to become useful money, and doing so before alternative financial networks become too embedded to uproot.

The writing of this commentary was supported by the AI transcription of the workshop discussion from which the recommendations are drawn.

© RUSI, 2026.

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