Ukraine is facing significant losses in budget revenues due to crimes related to cryptocurrencies, according to a recent report. The country stands to recover an estimated $10 billion or more through proper oversight of the crypto market.
Criminals, including corrupt officials, ordinary criminals, and even the Russian military, are taking advantage of Ukraine’s unregulated crypto market. A study by the Royal United Services Institute (RUSI) highlights the need for regulation to combat money laundering and generate tax revenue from crypto exchanges.
Despite having one of the highest rates of crypto ownership in the world, Ukraine has yet to establish a comprehensive framework for digital currencies. The country took a step towards regulation in early 2022 with the passing of the law “On Virtual Assets,” but enforcement is pending amendments to the Tax Code.
As part of its EU accession process, Ukraine is required to align its virtual asset legislation with EU rules. The country aims to achieve this by the end of the year, with two additional bills incorporating MiCA regulations still under consideration.
The RUSI report identifies specific risks to Ukraine, such as over-the-counter (OTC) activities, the use of crypto to procure sanctioned items for the Russian army, and the practice of money mules. Restrictions imposed by the National Bank of Ukraine during the war led to an increase in cryptocurrency usage, creating opportunities for illicit financial activities.
Money mule schemes, where individuals unknowingly lend their bank accounts to criminals for money laundering, are prevalent in Ukraine. These schemes are organized through social media and encrypted apps, leading to significant losses for the state budget.
The RUSI also alleges that Russian actors are using OTC platforms for hybrid warfare efforts, selling synthetic drugs to Ukrainian soldiers for crypto. Improved oversight in this area could help Ukraine recover up to $10 billion for the national budget and strengthen its standing with international partners.
In conclusion, Ukraine faces significant challenges in regulating its crypto market and combating financial crimes. By implementing proper oversight and aligning its legislation with EU rules, the country can mitigate losses and enhance its financial integrity.