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Dear readers: Our mission here at Nightcap has always been to get you up to speed on the biggest business and economy headlines of the day, ideally with a few tangents or snarky asides to make you smile. But with a war breaking out in Ukraine, we hope you'll understand our temporary change in tone and format as we navigate what that shifting landscape means for the global economy, financial markets and consumers. Let's get into it.

By Allison Morrow

EVADING SANCTIONS

US sanctions have gone from preventative to punitive in just two days.

 

On Thursday, as Russia unleashed a full-scale war in Ukraine, President Joe Biden announced another round of sanctions intended to squeeze Russian banks and "corrupt billionaires."

 

But one expert told me that any sanctions shy of those directly targeting President Vladimir Putin are unlikely to alter Russia's course of action.

 

"The oligarchs are mostly billionaires who are mostly beholden to Mr. Putin personally in some way, because they've seen what happens when you get into a battle with Putin," says Ross S. Delston, an expert on anti-money laundering compliance. "You wind up in prison or exiled, or worse, dead."

 

On top of that, evading sanctions — or at least mitigating their impact — has become much easier in recent years thanks in part to a surge of cryptocurrency adoption in Russia.

 

Here's the deal: The US and EU sanctions rely heavily on banks to enforce the rules.

• If a sanctioned business or individual wants to make a transaction denominated in traditional currencies such as dollars or euros, it's the bank's responsibility to flag and block those transactions.
• But digital currencies operate outside the realm of standard global banking.
• Key quote: "If the Russians decide — and they're already doing this, I'm sure — to avoid using any currency other than cryptocurrency, they can effectively avoid virtually all of the sanctions," said Delston.
• The US Treasury is well aware of this problem. In an October report, officials warned that digital currencies "potentially reduce the efficacy of American sanctions" by allowing bad actors to hold and transfer funds outside the traditional financial system.

Of course, evading sanctions isn't as easy as dumping all your dollar-denominated funds into Bitcoin. It's hard to buy anything directly with crypto, especially big stuff, Delston says. If you're a Russian billionaire looking for parts for your private jet, you can't just fork over crypto tokens for them.

 

Similarly, the oil trade that Russia's economy depends on is denominated in dollars.

 

THE UPSHOT

It remains to be seen how effective the latest round of sanctions will be, and whether they'll have any impact on Putin's mission in Ukraine. But Russian billionaires, including Putin himself, have had plenty of time to game this scenario out, and it's hard to imagine they haven't found ways, either through crypto darknet trades or good old fashioned money laundering, to protect themselves.

QUOTE OF THE DAY

Putin chose this war. And now he and his country will bear the consequences.

—President Joe Biden, announcing new sanctions against Russia on Thursday.

MORE ON UKRAINE

Ukrainian servicemen patrol in the Luhansk region of Ukraine on Thursday. (Anatolii Stepanov/AFP/Getty Images)

WHAT ELSE IS GOING ON?