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Regulators need to boost their oversight and auditing of crypto-asset service providers (CASPs) to prevent the use of cryptocurrencies to circumvent sanctions imposed on states such as Russia.

Members of the European Parliament (MEPs) have highlighted the issue, urging the European Commission to act against a new cryptocurrency that they say is helping Moscow evade Western sanctions and fund political influence operations abroad.

In a written  to the Commission, Bart Groothuis, Anouk Van Brug, Ľubica Karvašová, Karin Karlsbro and Dan Barna highlighted the emergence of “A7A5”, a token allegedly launched by a fugitive Moldovan oligarch in partnership with a Russian defence-sector bank that is already under EU sanctions.

The MEPs, who all sit with the centrist Renew group, cite news reports indicating that around $9.3bn worth of A7A5 tokens have been traded on a dedicated exchange within just four months of its launch, making it one of Moscow’s most powerful tools for circumventing restrictions on cross-border capital flows. 

The MEPs also warned that the token appears to be used to finance influence campaigns outside Russia, and cited earlier reports that cryptocurrencies are also facilitating Russia’s oil trade with China and India.

The parliamentarians asked whether, in light of this development, the Commission would follow the UK in sanctioning the A7 platform and its owners and backers. They also questioned whether operators of such exchanges could face criminal liability for sanctions evasion, and what additional steps Brussels might take with international partners to counter the use of crypto in evading sanctions.

The pitfalls of EU regulation

Since the invasion of Ukraine, Russia’s central bank has openly encouraged the use of cryptocurrencies to mitigate the impact of Western financial restrictions, complicating its European counterparts’ enforcement efforts. 

The A7A5 case highlights how sophisticated actors can still exploit weak points in the EU’s regulatory and sanctions framework, despite the progress made in its financial crime oversight, such as the single rulebook for anti-money laundering (AML) and the Markets in Crypto Assets (MiCA) Regulation. 

The challenge for Brussels policymakers is that tokens can be structured in ways that bypass existing rules and oversight. 

If a token is issued by sanctioned entities but structured to be difficult to trace or enforce against, it creates a pathway for laundering and sanctions evasion. Dedicated exchanges for such tokens can amplify the effect, moving large sums quickly across borders, often through jurisdictions with weak oversight.

Post-MiCA environment 

MiCA also struggles to cover decentralised finance (DeFi), and many DeFi protocols or token issuances are not tied to a clear, identifiable legal entity or “service provider” in the way the regulation expects. 

This makes it difficult to apply licensing, sanctions or AML rules in the usual way, and anonymous or self-custodied wallets, peer-to-peer transfers and mixers are even harder to regulate. Although new rules aim to address them, they present complex technical and legal challenges.

Another weakness is the speed of innovation in the crypto space. Laws and regulations have been slow to catch up, and by the time MiCA or AML rules are fully in force, new tokens, exchanges and cross-border payment paths may already be operating. 

Regulators are struggling to keep pace with techniques used to obscure ownership, hide beneficiaries and move funds across multiple chains.

Although the EU has introduced criminal penalties for sanctions evasion, prosecuting those who set up or run such tokens or exchanges is still difficult. Proving offences, tracing flows and overcoming jurisdictional hurdles often undermine enforcement. 

Sanctions screening of exchanges, platforms and wallets may also be incomplete or circumvented because of anonymity, inadequate data or default user protections.

Possible ways forward

These weaknesses point to several possible policy responses for the European Commission and other authorities. 

Lawmakers need to consider whether rules must adapt more rapidly to cover new innovations such as DeFi, mixers, privacy coins and cross-chain bridges. 

Oversight and auditing of crypto-asset service providers will need to be increased to verify ownership and enforce disclosure. In addition, the EU and national authorities need sufficient resources, staff and technical capacity to understand the products and assets they are dealing with. 

Sanctions enforcement for crypto needs to go beyond listing entities, ensuring that intermediaries – whether that be exchanges, gateways or validators – cannot facilitate evasion. 

This could mean instilling a culture of closer cooperation with blockchain analytics firms, as well as cross-border law enforcement agencies and forensics specialists. 

The EU has built a far stronger regulatory and legal framework than in the past, and measures such as MiCA, along with new AML and sanctions-evasion laws, represent significant steps forward. 

However, the A7A5 case suggests that, despite these advances, major vulnerabilities remain, especially when actors are sophisticated, operate in legal grey zones or exploit speed, anonymity and decentralisation. 

The parliamentary question highlights the limits of EU regulation in sanctions enforcement via crypto. It suggests further tightening, stronger enforcement and new tools will be needed to stay ahead of those using digital assets to bypass restrictions.