Officials representing the United States government called on the Japanese authorities to order the nation’s cryptocurrency exchanges and miners to cut their current ties with Russia.
Per a recent report from The Financial Times, the move targets Japan’s 31 licensed crypto exchanges and aims to isolate Russia further from the rest of the world following its invasion of Ukraine.
The US diplomats said several of Tokyo-based crypto firms are still running operations in Russia and asked regulators to specifically focus attention on ceasing crypto mining operations in the Irkutsk region of Siberia.
In Siberia, cheap hydropower and abandoned Soviet industrial infrastructure has made the region an attractive spot for crypto miners. In addition to the cheap electricity, the local climate is favorable to miners as rigs and related machines require less cooling.
Japanese authorities have been already preparing new restrictions that would bring crypto exchanges under the purview of its Foreign Exchange and Foreign Trade Act.
The move comes as Japan wants crypto businesses not to process transactions involving crypto assets subject to asset-freeze sanctions against Russia over the war in Ukraine.
For this purpose, a representative to the country’s cabinet said that the government plans to introduce a bill to revise its foreign exchange and trade law to include crypto exchanges. Under this new proposal, crypto exchanges will act like regular banks in a sense that it would be obliged to verify and flag suspicious activities, including transactions related to sanctioned countries.
According to officials, unauthorized payments to sanctioned entities or individuals, even with digital assets, whether NFTs or crypto, will attract punishment.
Russia may use crypto to turn around sanctions
Although the proposed revision doesn’t ban the country’s 31 crypto platforms from facilitating transactions with Russian-based wallets, it puts higher compliance requirements. This compliance aims to tackle concerns that oligarchs in Belarus and Russia may resort to crypto to avoid the financial sanctions imposed over Ukraine invasion.
Available information shows that many Russian entities and individuals are looking to liquidate their assets to acquire properties in crypto-friendly regions, like the UAE, through crypto.
Japan stands out in Asia when it comes to the regulatory aspect, especially after several jurisdictions, such as China and India made it nearly impossible for crypto firms to exist.
Even before the recent geopolitical crisis, the Japanese Financial Services Agency (FSA) said earlier this year that it is seeking to establish stricter regulations on cryptocurrencies. The watchdog had to implement tighter rules following a series of hacks in recent years that led to investors losing billions of dollars.
For this purpose, the financial regulator set up a dedicated unit to oversee crypto business as well as a panel of experts on the issue. Meanwhile, the Bank of Japan started a central bank digital currency experiment, although it says it has no plan to issue a one at the moment.