Former Treasury Department officials and sanctions experts predict that Russia will try to mitigate the financial penalties by selling energy and relying on the country's gold and Chinese currency reserves. 

The harsh sanctions imposed on Russia, as well as the subsequent collapse of the rouble, have the Kremlin scrambling to keep the country's economy running. For Vladimir Putin, this means finding ways to circumvent the Western economic blockade while his forces continue to invade Ukraine. 

Former Treasury Department officials and sanctions experts predict that Russia will try to mitigate the financial penalties by selling energy and relying on the country's gold and Chinese currency reserves. Putin is also expected to move funds through smaller banks and accounts of elite families that are not subject to sanctions, deal in cryptocurrency, and rely on Russia's relationship with China. 

Right now, "the biggest two avenues that Russia has are China and energy," according to John Smith, former director of the Treasury's financial intelligence and enforcement arm. 

The United States and the European Union have imposed sanctions on Russia's largest banks and elite, frozen the assets of the country's Central Bank located outside the country, and barred its financial institutions from using the SWIFT bank messaging system — but have largely allowed its oil and natural gas to continue to flow freely to the rest of the world. 

While Russia is likely to turn closer to China to compensate for lost supplies of goods and services from the West, Smith added, "they're also betting that their enormous energy supplies will continue to be in demand, particularly during this cold winter." If they can get their energy to market, they can make a lot more money." 

Last month, Russia and China signed a 30-year agreement that will allow Russia to supply gas to China, though the pipelines to carry that gas will not be completed for at least three years. Furthermore, China announced last week that it would allow wheat imports from all parts of Russia for the first time. 

Smith, on the other hand, predicted that the Chinese and others "will be driving incredibly hard bargains" now that Russia has fewer willing buyers, and China will want to avoid being subjected to secondary sanctions or sanctions violations enforcement. 

According to a senior administration official, the Biden administration is developing a "focused tactical strategy" to ensure that cryptocurrency does not become a mechanism that Moscow can use to avoid sanctions. 

The official, who spoke on the condition of anonymity to discuss the yet-to-be-announced move, did not provide an exact timeline for when the new steps on cryptocurrency would be unveiled, but said the area is one of several that Biden administration officials are looking to shore up as it looks to ensure that sanctions on Russia have maximum impact. 

According to the official, the administration's efforts are informed by previous experiences with sanctions evasion in Iran and Venezuela. Additional export controls and new sanction targets are also expected to be announced in the coming days and weeks to counter Russian sanction evasion efforts, according to the official. 

Officials have already been on the lookout for the use and formation of front companies and alternative financial institutions that Moscow may try to use to circumvent sanctions. 

On Monday, the United States tightened its sanctions to immobilise any assets of the Russian Central Bank in the United States or held by Americans. The Biden administration estimated that the move could affect hundreds of billions of dollars in Russian funding. 

The most recent measures do include a loophole that allows for energy-related transactions with the bank. The penalties also have no effect on Russia's gold stockpile, which Putin has been amassing for several years. 

Tyler Kustra, an assistant professor of politics at the University of Nottingham who has studied economic sanctions, said Moscow had already adopted a "Fortress Russia economy" — producing many goods domestically even if it was easier to import them — to protect the economy from sanctions. 

Much of Russia's food is produced locally, but some of it does not match comparable foreign-made items, and others cannot be substituted, he said. 

"My friends in Moscow say, 'Look, they've never really gotten cheese right,'" Kustra said. 

An increased reliance on cryptocurrency would be an unavoidable avenue for Russia to try to prop up its financial transactions, according to David Szakonyi, a political science professor at George Washington University, "but it's unlikely it'll serve as a substitute for corporate transactions over time." 

The administration has prior experience regulating Russian cryptocurrency businesses. Earlier this year, the Treasury sanctioned Russia-based SUEX and 25 affiliated cryptocurrency businesses, blacklisting the exchange from the dollar financial system, for allegedly assisting criminal hackers in cleaning and cashing out their loot. It was the first cryptocurrency company to receive that honour. 

Ari Redbord, a former Treasury senior adviser who now heads government affairs at TRM, which develops analytics on financial crimes, said his organisation has identified at least 340 businesses in Russia that could potentially be used as "on and off ramps" for crypto currency. 

According to Redbord, the amount of cryptocurrency required by Russia to replace the billions of sanctions "would be very difficult to off-ramp into traditional currency" due to the breadth of the sanctions. 

Ori Lev, who worked as the head of enforcement at the Treasury's Office of Foreign Assets Control during the Obama administration, stated that "whether it's using cryptocurrency or relying on China, there are mitigating actions they can take, but they can't recreate the financial system." 

The Biden administration has argued that China will be unable to compensate for the loss of US and European business, and that sanctions cutting Russia off from Western sovereign debt markets will be crippling. At the same time, the White House has publicly argued that Beijing coming to Moscow's aid could be damaging to China's reputation in Europe and around the world in the long run. 

By Monday afternoon, the rouble had plummeted, and Russians had been queuing for hours in ATM lines as inflation fears erupted. 

"I'm not sure what specific steps they're going to take to mitigate the bite of the sanctions, but it's not going to undo them," Lev said.

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