One of the world’s largest cryptocurrency exchanges won’t shut down Russian accounts unless the State Department orders it to do so, according to its CEO.
Kraken CEO and co-founder Jesse Powell said the San Francisco-based company is within legal sanctions requirements and is working with law enforcement to make sure banned accounts don’t slip through the cracks. But total bans are unfair to average Russians, who might not support the country’s invasion of Ukraine, Powell said.
“It’s a pretty extreme measure, and it’s far beyond turning off someone’s access to their music streaming service, or their their photo sharing app,” Kraken’s CEO told CNBC’s Crypto World in an interview. “Shutting off someone’s financial access is something we take very seriously.”
The United States, U.K. and European Union have announced waves of penalties against Russia to pressure President Vladimir Putin into backing off from an attack on Ukraine. That includes cutting the country out of the widely used global payments communication system, SWIFT. Visa, Mastercard, major banks, and other conglomerates such as Nike and Apple have stopped doing business in Russia.
Despite the restrictions, payment companies are still technically allowed to operate there, as long as the accounts don’t pop up on a sanctions list. If the U.S. and NATO allies went a step further with country-wide bans, such as those on North Korea and Iran, Powell said the exchange would pivot and shut things down.
“Where we are required to do so legally, we will freeze the accounts,” he said. “But as far as sanctioning individuals, we haven’t seen that work very well… once you go to freeze someone’s financial account, they’re no longer able to pay their rent, pay their debts, buy food, and support their family.”
Jesse Powell, CEO of cryptocurrency exchange Kraken, sits for a photograph at the company’s San Francisco office in 2014.
David Paul Morris | Bloomberg via Getty Images
Ukrainian officials have urged the industry to step in. Vice Prime Minister Mykhailo Fedorov tweeted a plea to all major crypto exchanges to block addresses, and said “it’s “crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users.”
Kraken competitors Binance, Coinbase and FTX are also still operating within Russia and, according to data firm Kakio, have seen more activity in Eastern Europe since the conflict began. Transactions in the Russian ruble and the Ukrainian hryvnia hit their highest levels in months, suggesting increase demand amid the conflict, according to data from Kaiko.
A spokesperson for Binance said the exchange was “not going to unilaterally freeze millions of innocent users’ accounts” but is blocking the accounts of any individuals on sanctions lists, while “ensuring that all sanctions are met in full,” the spokesperson said.
Coinbase CEO Brian Armstrong said something similar Thursday night, and explained that the exchange was not “preemptively” banning all Russians from the platform.
“We believe everyone deserves access to basic financial services unless the law says otherwise,” Armstrong tweeted, adding that if the U.S. government decides to impose a ban, “we will of course follow those laws.”
Some in Congress have flagged the possibility of cryptocurrencies being used by Russia to get around sanctions. Elizabeth Warren and three other Democrats in the Senate wrote a letter to the Treasury Department asking for an explanation of how they’re overseeing the industry, and its potential for dampening sanctions enforcement.
The industry has pushed back on that, too. Kraken’s Jesse Powell said it’s a “misunderstanding” by those in Washington who “don’t understand how cryptocurrency works” and “don’t understand how regulated the space already is.”
“They have this perspective of ten years ago, when it was a very nascent technology,” Powell said. “It’s a heavily regulated industry and it’s heavily traceable. Politicians haven’t caught up with where we really are, and they have an outdated view of the whole situation.”
— CNBC’s Arjun Kharpal contributed reporting.