US Diplomats Target Japanese Crypto Companies in Russia

The United States has appealed to Japan to dial up the pressure on its cryptocurrency exchanges doing business with Russia.

U.S. diplomats have asked Japanese officials to target crypto operations in Irkutsk, Siberia, where cool temperatures and cheap, sustainable energy have attracted miners.

According to three exchanges, Japan’s Financial Services Agency (FSA) has ordered all exchanges under their jurisdiction to sever any remaining ties with Russia as the U.S. and its allies seek to isolate the Kremlin from the global economy. At present, 31 FSA-licensed exchanges operate in Russia.

Last Oct, the U.S. Office of Foreign Assets Control introduced sanctions legislation including crypto assets in its scope, landing BitRiver, Russia’s largest mining co-location provider with three facilities in the country, in hot water.

Japanese Prime Minister Fumio Kishida, on a visit to the United Kingdom two months ago, emphasized the importance of a united international response to Russia’s invasion of Ukraine.

He said it was important to show Russia the consequences of attacking its neighbor and to discourage China from attacking the Taiwan Strait, an area key to international stability.

When asked about the renewed pressure on miners, a spokesperson for the U.S. Department of State said that they were determined to hold Russia accountable for its actions and suggested it was ready to deploy more severe measures.

FSA moves to bring digital assets under sanctions rules

In March, the FSA moved to monitor the movement of assets belonging to any sanctioned entity under the new rules bringing digital assets into Japan’s Foreign Exchange and Foreign Trade Act. The act now empowers the Japanese government to monitor incoming and outgoing fund flows for sanctions violations.

While the new regulations did not expressly prohibit doing business in Russian territory, some exchanges interpreted it as such and closed up shop in March.

But some exchanges and mining operations have employed novel strategies to maintain business relations with their Russian entities. One exchange set up a shell corporation in Singapore to route funds to its Russian interests.

Soviet-era power a drawcard

The Irkutsk region in Siberia is littered with hydroelectric dams established during the Soviet era under the rule of Josef Stalin. The plants were initially used to power uranium enrichment for nuclear weapons but now power miners looking to capitalize on the $0.0012 per kiloWatt-hour residential rate.

China’s ban on miners sparked a sell-off in mining equipment that became available to miners in Russia. Mining hardware in Russia is usually purchased over Telegram from informal traders importing the equipment from China.

Last year, the governor of Irkutsk wrote to President Vladimir Putin’s deputy complaining of a flood of new demand on the region’s grid.