Japan rewrites law to stop Russian crypto sanctions evasion

As Moscow faces a financial meltdown, cryptography is under scrutiny for its potential as a conduit for Russians looking for a way out of sanctions. As a result, governments such as the UK and the US have issued guidance that makes it clear for cryptocurrency companies to abide by sanctions against Russia.

Japan prevents Russia from using crypto to circumvent sanctions

Japan announced on Monday it would review foreign exchange regulations to prevent Russia from using cryptocurrencies to evade sanctions.

A senior government official passed the decision to amend his Foreign Exchange and Foreign Trade Act during a session of parliament. 

The government will present the revised bill to prevent sanctioned nations from turning to cryptocurrencies to escape sanctions, Cabinet Secretary Hirokazu Matsuno said at a news conference today.

The country's prime minister, Fumio Kishida, also highlighted the revision of the law, coordinating with Western allies following the G7 summit earlier this month.

"Discussions are ongoing" regarding the proposed amendment, a finance ministry official told Reuters. However, he declined to comment on what the revision and deadline for the new rewritten document might be.

According to Saisuke Sakai, a senior economist at Mizuho Research, the amendment follows public support for sanctioning Russia. He told Reuters:

"[The revised bill] allegedly allows the government to enforce the law on cryptocurrency exchanges such as banks and force them to check whether their customers are targets of Russian sanctions."

Japanese authorities have ordered cryptocurrency exchanges to comply with Russian sanctions and not to conduct any cryptocurrency transactions involving Russian and Belarusian accounts.

The country's financial watchdog - the Financial Services Agency - said "the sooner the better" to keep the momentum of the G7 alive.

What is the law about?

In Japan, cryptocurrencies and utility tokens such as Bitcoin (quotation BTC) and Ethereum (ETH) are regulated as "cryptocurrencies" under the Japanese Payment Services Law.

Furthermore, stablecoins such as Tether (USDT), USD Coin (USDC) are likely to be either crypto assets or means of payment in fund remittance transactions, depending on whether stablecoins are redeemable in fiat currency.

Foreign exchange law permits adequate expansion of foreign transactions by carrying out the minimum necessary control or coordination of transactions. This brings balance and stability to currencies.

Changing the law to include cryptocurrencies in foreign transactions would imply strict rules. This would cause crypto exchanges and companies in Japan to control sanctioned countries and individuals.