Russian entities that use the Crypto industry of Kyrgyzstan to avoid sanctions: report

Russian individuals and groups use Kyrgyzstan Cryptocurrency Ecosystem to avoid international sanctions, according to research by the British blockchain-in-lighting company TRM Labs.

TRM Labs published his findings in a blog and reported that Kyrgyzstan seems to serve as a front for cryptocurrency platforms and services linked to the Russian Exchange Garantex, which was closed in March after an international operation.

The conclusions are based on analysis of transfers between Russia-linked entities and platforms registered by Kyrgyzstan, including transfers from the A7A5 stabilewhich it reported earlier was used to move funds from Garrantex to Grinex in Kyrgyzstan.

The report also notes that many Kyrgyz platforms are registered with the same residential addresses, contact details and founders, behavior that is typical of Shell companies.

In fact, linked activities in Russia accounts for almost all cyggyzstan’s cryptocurrency industry, the report of which it “hardly exists” one month before Russia’s raid in Ukraine in February 2022.

“The recent growth of the Crypto industry of Kyrgyzstan seems to be powered by the Russian demand, not within domestic use” Decrypt.

Kyrgyzstan’s Pro-Crypto Pivot

The Government of Kyrgyzstan adopted a pro-Crypto law in January 2022, which means that cryptocurrencies are effectively recognized as ownership, while also drawing up a registration regime for virtual asseters (Vasp).

In combination with the growing demand from Russia, the approval of this law enabled the Kyrgyz Crypto sector to grow rapidly, with VASPs by the end of 2022 a transaction volume of $ 59 million and then in the first seven months of 2024 only $ 4.2 billion of $ 4.2 billion.

Nevertheless, Chase repeated that there is “little evidence of important local adoption or organic demand within Kyrgyzstic itself”, which implies that the cryptocurrency industry of Kyrgyzstan is in fact a spur of its Russian counterpart.

According to TRM Labs: “Many platforms registered by Kyrgyzstan, including Grinex and more, show clear tires to Russian fairs such as Garantex and facilitate large-scale rubles of Crypto-transactions with the help of Stablecoins supported by Russian,” Chase explained. She added that these platforms “have become important pipes for Russian entities – both legitimate and illegal – and seems to see access to global financial systems in the midst of sanctions.”

The TRM Labs report also identifies some of the entities that Kyrgyz scholarships have used to circumvent sanctions, including paramilitary outfit Rusich Group, which has registered wallet addresses with Envoys Vision Digital Exchange (EVDE).

The company also discovered that EVDE and other trade fairs have interactions with cross -border logistics companies and Chinese financial institutions, suggesting that Kyrgyzstan plays an increasingly important role in helping Russia to buy goods for double use (such as semiconductors and drones) for military purposes.

For example, bilateral trade between Kyrgyzstan and Russia was worth $ 3.5 billion last year, while imports in Russia through countries such as Kyrgyzstan rose to $ 20 billion in the first half of 2023.

In addition, TRM labs also quoted figures that showed that the Chinese export of 45 specific goods with two use to Kyrgyzstan and Kazakhstan increased by 64% between 2022 and 2023, with a combined value of $ 1.3 billion.

And there are currently no real signs that the Cryptocurrency sector of Kyrgyzstan will stop expanding in the near future, with more than 126 vasp’s now under license in the country, and with his Ministry of Finance, which are currently developing a domestic, USD-Pegged Stablecoin, USDKG.

A lack of checks and balances

Every potential progress is probably also impeded by the administration and political climate of Kyrgyzstan.

According to Altynai Myrzabekova, regional adviser for Eastern Europe and Central Asia at the global anti-corruption organization Transparency International, the political environment of Kirgyzia is characterized by weak checks and baldi, as well as the increasing executive “vulnerabilities creates.

“Although we have not independently assessed the specific use of crypto exchanges based on Kyrgyzstan by Russian actors,” she said Decrypt“The broader regional context, including catching the state, weak judicial independence and opaque control of natural resources, suggests a high risk that such practices will be engaged or overlooked.”

Kyrgyzstan scored 25 out of 100 in the 2024 corruption perceptions index of Transparency International, a score that represents “serious worries” about integrity and transparency of the public sector.

Myrzabekova told Decrypt That, “without stronger guarantees, transparency measures and the political will to enforce anti-money laundering practices and sanctions,” Kyrgyzstan “remains strongly exposed to exploitation by corrupt actors and punished entities.”