After the outbreak of a full-scale war in Ukraine in 2022, Russia faced unprecedented sanctions pressure. Restrictions have affected key areas of the Russian economy such as the international financial sector, oil and gas exports, and access to global capital markets. Under these conditions, Moscow began to look for new tools to maintain external economic relations and circumvent sanctions. One of which became cryptocurrencies. In the past two years, digital assets have become an alternative channel of capital movements used by both private actors and public institutions.
Solving the problem of its participation in international crypto operations, in Russia in 2022-2023 a number of laws were adopted that actually legalized the use of digital currencies in foreign trade calculations. Government officials have openly announced plans to use cryptocurrency for international transactions, including export transactions. By mid-2024, the legal framework was amended to allow companies to calculate cryptoassets when trading with foreign partners. This policy created a legal foundation for practices that were previously perceived as niche and semi-legalistic.
At the same time, Russia is developing infrastructure for mining and cryptocurrency exchange, positioning this as an opportunity to strengthen financial sovereignty. In the context of limited access to global financial systems and sanctions against major banks, cryptocurrency becomes «alternative SWIFT», even if not as reliable or large-scale, but quite effective, and what is important, secretive.
Studies of analysts and blockchain companies, as well as data from Western sanctions agencies, highlight several key mechanisms through which sanctions are circumvented.
The main ones are OTC (Over-the-Counter) and P2P (Peer-to-Peer) platforms. Their essence is that the calculations are carried out outside of centralized exchanges, directly between counterparties or through over-the-counter OTC trading (service of over-the-counter trading in the financial market). Such transactions allow trading of various assets, including stocks, bonds, currency and cryptocurrencies, Such transactions are quite difficult to trace, and counterparties easier to hide the ultimate beneficiary.
Some crypto exchanges do not require strict client identification. These platforms are used to transfer funds bypassing financial monitoring, as well as exchange cryptocurrencies into fiat currencies (government paper money, such as the dollar, euro, ruble, which does not have its own supply of precious metals, and their value is held in trust by the government issuing them as a legal means of payment) third countries.
According to a recently published investigation by Transparency International Russia in Exile, there is a Russian cryptocurrency exchange that uses platforms to move funds through banks and intermediary companies, and funds are paid through accounts in such jurisdictions, as Hong Kong, Dubai and Thailand.
Another way to complicate the tracking of transactions are special services, such as «mixers» and anonymization services, mixing different users’ transactions. This makes it possible to «erode» the source of funds and make it almost impossible to determine their exact origin.
Also, banks and companies in countries that have not joined the Western sanctions are often used to turn cryptocurrency into fiat money. This scheme allows to mask the chain of transactions and put the funds in legal circulation.
Journalists and analysts recorded cases of use of cryptocurrency in calculations for the supply of Russian oil and coal, so-called «energy» transactions. This is particularly relevant for Russia in the hydrocarbon trade with China and India, where some counterparties are willing to experiment with digital assets.
And yet there are certain results of countering illegal crypto operations, despite all their variety of ways to «hide».
In the spring of 2024, the US Finance Ministry imposed sanctions against several Russian crypto firms, including Netex24, accusing them of promoting circumvention. In official releases it was noted that the services were used to transfer funds of Russian customers abroad, bypassing international prohibitions. In the same year, similar accusations were made against Cryptex exchangers and a number of other platforms involved in schemes to launder and finance «grey» operations. These cases confirm that we are not only talking about private initiatives, but also about systemic practices that have to be blocked at the level of international sanctions regimes.
Journalistic investigations also show that cryptocurrencies were used in the calculation chains of energy exports. While the magnitude of such operations remains a matter of debate, their very existence signals new threats to the effectiveness of sanctions pressure.
Today, experts note that cryptocurrencies are not yet able to completely replace the traditional mechanisms of international calculations. Their use is associated with risks of volatility (a measure of the statistical variability of the price of financial assets (shares, currency, cryptocurrency) over a certain period of time), limited liquidity and problems with legal protection of transactions. However, for individual transactions, especially those related to «grey» imports or hidden deliveries of raw materials, cryptocurrencies have become a rather effective working tool.
Blockchain analytics allows to detect suspicious transactions, but the final identification is difficult. To link addresses with government structures, a combination of data from the blockchain, bank reports and intelligence information is needed. That is why today the extent of the use of cryptocurrencies to circumvent sanctions is often estimated quite presumptuously. Western regulators have increased their attention to cryptocurrency in connection with the increase of activity of Russian players. The US Treasury regularly publishes new sanctions lists, which include crypto exchanges and companies that help circumvent restrictions. The UK and EU are also imposing restrictions on services related to Russian transactions.
Analytical centers, such as Chainalysis and RUSI, produce detailed reports on the methods and extent of the use of cryptocurrencies to circumvent sanctions. These materials help governments to adjust controls and close vulnerabilities in the international financial system.
Admittedly, Russia’s use of cryptocurrency and cryptocurrency to circumvent sanctions has become an important part of the shadow economy of recent years. Changes in Russian legislation, increased activity of the crypto exchange and detected sanctions cases indicate that digital assets have become a real tool for circumventing international restrictions.
However, this tool remains auxiliary and does not completely replace traditional financial channels. The scope of its application is still limited, and international regulators are increasing pressure on sites and intermediaries. As a result, cryptocurrencies become more of a temporary «window of opportunity» than a long-term strategy.
Nevertheless, Russia’s experience demonstrates that cryptocurrencies can be used not only as an innovative financial tool, but also as a means of circumventing global rules. This poses the challenge for the global community to develop more stringent controls and concerted measures to prevent the use of digital assets to finance sanctioned activities.