"Crypto Circumvents Sanctions: Iran's $15.8B Surge"

Sanctioned jurisdictions accounted for 39% of illicit crypto transactions in 2024, according to a report by blockchain analytics firm Chainalysis. The jurisdictions and entities sanctioned by the US Office of Foreign Assets Control (OFAC) received $15.8 billion in cryptocurrency transactions that year, highlighting the growing role of cryptocurrencies in circumventing economic restrictions.

Residents of sanctioned jurisdictions like Iran turned to cryptocurrencies as a means to preserve wealth and move funds across borders. This trend led to a surge in the usage and outflows of centralized exchanges (CEXs) in Iran, with transaction patterns suggesting capital flight. The quarterly value received by sanctioned entities and jurisdictions is shown in the graph below:

In 2024, OFAC's crypto-related sanctions expanded beyond individuals and small groups to target the financial infrastructure supporting illicit activity. While the total number of sanctioned entities decreased, the financial footprint of these organizations remained substantial. The US sanctions on Russia aimed to reduce the use of crypto in funding the war against Ukraine, illicit cyber activities, and organized crime networks. However, a sanctioned Russian unmanned aerial vehicle (UAV) manufacturer, KB Vostok OOO, managed to circumvent the financial blockade by selling drones with the help of local exchanges.

The report also linked various other unlicensed Russian crypto exchanges and sanctioned entities to the alleged laundering of millions of dollars worth of illicit funds. Despite an increase in non-Know Your Customer (KYC) crypto exchanges, the sanctions enforcement resulted in an overall decline in inflows. Many individuals and businesses in these regions turned to cryptocurrencies to preserve wealth, move funds across borders, and circumvent government-imposed financial controls.

Crypto-mixing services such as Tornado Cash pose a significant challenge to the enforcement of sanctions, given their ability to anonymize the source of transactions. While authorities managed to temporarily reduce the use of Tornado Cash, Chainalysis reported an uptick in its usage in 2024. The increase was attributed to stolen funds perpetrated by various hackers, including North Korea-linked Lazarus Group. However, as the focus on compliance increases, the exposure of offshore crypto exchanges with Iranian services is on a steady decline.

The new Trump administration reinstated the "maximum pressure" campaign on Iran to be enforced by the US Department of Justice. The measurable decline in exchange interactions with Iranian