Moscow May Use Cryptocurrency as Secret Route to Evade Sanctions, According to TRM Labs
In a recent blog post, New York-based blockchain forensics firm TRM Labs has raised concerns about the activities of Kyrgyzstan-registered crypto exchanges. According to TRM Labs, these platforms are being used by Russian actors to circumvent international sanctions.
The investigation by TRM Labs has revealed that Russian actors are indeed using Kyrgyzstan-registered crypto exchanges, including shell companies, to bypass sanctions. Notable exchanges like Envoys Vision Digital Exchange (EVDE), Grinex, Meer, and others, all registered in Bishkek or other parts of Kyrgyzstan, have been directly linked to sanctioned Russian entities and activities.
TRM Labs' findings suggest that these platforms exhibit coordinated behaviours and share connections, such as crypto wallet addresses tied to sanctioned Russian groups like the Rusich Group and the former sanctioned Russian exchange Garantex. This indicates orchestrated efforts to bypass sanctions through crypto channels.
The implications of this activity are significant for regulatory action. Kyrgyzstan's regulatory framework, particularly the 2022 law recognizing cryptocurrencies and establishing licensing for Virtual Asset Service Providers (VASPs), has been exploited to create a “shadow network” of crypto exchanges without requiring physical presence in the country. This regulatory environment enables foreign actors to establish shell crypto exchanges that obscure transaction origins, making enforcement of sanctions difficult.
The repeated use of stablecoins pegged to the US dollar, such as A7A5, facilitates converting Russian rubles into more easily transferable digital assets outside traditional banking systems.
Analysts suggest that Kyrgyzstan’s crypto infrastructure is part of a broader financial escape route for Russia, providing a permissive environment with minimal oversight and limited cooperation on law enforcement with Western countries. This makes Kyrgyzstan a critical node in Russia’s sanctions evasion strategy, comparable to known cases in Venezuela and Iran where crypto was used for similar purposes.
In terms of regulatory response, the reports imply a need for Kyrgyzstan and international regulators to enhance oversight of crypto exchanges to ensure robust KYC (Know Your Customer) and AML (Anti-Money Laundering) measures are in place. They should also investigate and potentially sanction or restrict entities shown to facilitate illicit transactions. International cooperation is crucial to track the flow of crypto assets connected to sanctioned Russian actors.
Currently, while the Kyrgyz government has some regulatory frameworks, enforcement appears insufficient to prevent misuse by Russian entities seeking sanctions workarounds.
In summary, Russian actors are leveraging Bishkek-registered shell crypto exchanges to evade sanctions, exploiting Kyrgyzstan’s permissive crypto regulations. This has serious implications for regulatory authorities who must strengthen controls and international collaboration to counter these evasion networks.
Investing in cryptocurrencies through Kyrgyzstan-registered exchanges like Envoys Vision Digital Exchange (EVDE), Grinex, Meer, and others has become a tool for Russian actors to bypass international sanctions, based on the investigation conducted by TRM Labs. The regulatory environment in Kyrgyzstan, including its 2022 law on cryptocurrencies, allows foreign actors to establish shell crypto exchanges, thus creating a "shadow network" that hinders the enforcement of sanctions.
International cooperation is essential to mitigate the use of Kyrgyzstan’s crypto infrastructure as part of Russia’s sanctions evasion strategy, as it has been seen in Venezuela and Iran. Regulatory bodies should enhance oversight of crypto exchanges, implement robust KYC and AML measures, and investigate entities facilitating illicit transactions to prevent future misuse.
