Russia is Developing Crypto Infrastructure to Evade Western Sanctions: Chainalysis Reports

Russia has taken steps to utilize cryptocurrency, having enacted legislation permitting cryptocurrency mining and using digital currencies for international transactions.

According to a report from Chainalysis , Russia’s Central Bank (CBR) is leading this initiative, which includes plans for trial cross-border crypto transactions starting in September.

Russia’s Crypto Strategy to Skirt Sanctions

On August 9, President Vladimir Putin signed bills that legalized crypto mining and allowed international crypto payments. The new laws will allow approved Russian businesses and entities to use digital currencies for cross-border payments. Russia’s central bank is also testing its digital currency, the digital ruble, expected to launch in 2025.

“These recent crypto-forward legislative efforts are part of Russia’s broader efforts to develop alternative payments mechanisms to alleviate Western sanctions pressure while decreasing dependence on the U.S. dollar, which has been a long-term goal for Russia especially amidst increasing geopolitical tensions,” Chainalysis said.

Chainalysis points out that Russia-based cryptocurrency exchanges like Garantex and Exved could be used to process these international payments. These exchanges have already been linked to sanctions evasion tactics.

Chainalysis also mentioned non-KYC (Know Your Customer) platforms like Bitzlato, Suex, and Tetchange, which have offices in Moscow’s International Business Center.

These platforms may serve as a major part of Russia’s crypto ecosystem. Since they don’t require identification, such platforms make it harder for authorities to trace funds. However, blockchain’s transparency could still give investigators insight into Russia’s tactics.

Garantex has deep liquidity across several major blockchains, making it a valuable tool for Russia’s cross-border crypto payments. Exved, on the other hand, has close ties to InDeFi Bank, founded by Garantex founder Sergey Mendeleev and former KGB officer Alexander Lebedev. Together, they have been facilitating imports and exports using cryptocurrency.

Russia’s Broader Plans for Crypto and International Trade

Notably, Russia is not making only domestic efforts to use cryptocurrency to evade Western sanctions. The country is also collaborating with other countries, especially the BRICS community, to explore using blockchain technology for international payments .

BRICS consists of Brazil, Russia, India, China, and South Africa, and the group has been looking for ways to bypass the traditional U.S. dollar-based financial system.

Another initiative is Russia’s Financial Messaging System of the Central Bank (SPFS), an alternative to the SWIFT financial messaging system.

However, SPFS has not gained much traction internationally, with limited adoption.

As recently as 2022, the Central Bank of Russia was against cryptocurrencies and pushed for a total ban. Despite the new legislation, the ban on domestic crypto payments remains, but Russia is now opening up to digital currencies for international trade.