- Russian entities use Tether to bypass sanctions for acquiring dual-use goods, including drone components.
- Andrey Zverev facilitates these transactions, linking Russian firms to foreign suppliers in the Middle East and China.
- The U.S. Treasury seeks legislative action to block transactions in stablecoins like Tether used in sanction evasion.
The emerging trend of Russian entities using cryptocurrency to bypass Western sanctions has recently gained attention. Key among these developments is the use of Tether, a popular stablecoin, for the purchase of high-tech equipment and weapons parts. This includes components for drone production, highlighting the intricate network being leveraged to evade restrictions imposed by the West.
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The Role of Cryptocurrency in Sanction Evasion
The Wall Street Journal has conducted a detailed investigation into these transactions. The process involves Russian importers making ruble payments to intermediary accounts in Russian banks, which they then convert into Tether. Subsequently, this converts into foreign currency, ultimately reaching suppliers in China and the Middle East.
Andrey Zverev, a Russian national involved in these operations, has established a significant connection with Kynix Semiconductor, a Hong Kong supplier, and a principal subsidiary of the Kalashnikov concern, known for drone manufacturing. Zverev, who candidly shared details of his activities, claiming he wasn’t violating Russian laws, later suggested that he faced pressure to remain silent, possibly from Russian intelligence services.
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Andrey Zverev: A Key Player in the Shadow Trade
Initially focused on facilitating the import of consumer goods from China to Russia to evade customs duties, Zverev expanded his operations to involve cryptocurrency transactions. He preferred to use Moscow-based crypto exchange Garantex for these activities. However, Garantex faces U.S. sanctions for facilitating such transactions.
With the onset of the full-scale war, and as Western sanctions tightened, these clandestine operations grew in significance. Chinese banks began to block ruble payments to avoid losing Western banking connections, prompting Russian importers to seek alternative channels like Tether for transactions. Sergey Mendeleev, the founder of Garantex, has been instrumental in this network, creating platforms to assist with these cryptocurrency-based payments.
The scale of this shadow trade is significant, with estimates in August 2023 placing the monthly volume at around $10 billion. Zverev played a crucial role, ensuring the flow of necessary components for drone production in China to Russia, using a ‘grey’ transport route through Central Asia.
A notable example involved an order from Kalashnikov for 248 types of electronic parts, including STM32 microcontrollers made by a Swiss firm. These components, discovered in downed drones such as the Lancet, are crucial for the manufacture of these unmanned aerial vehicles.
Legislative Response to Cryptocurrency Misuse
In light of these developments, the U.S. Treasury Department is urging Congress to pass legislation enabling the blocking of transactions in U.S. dollar-denominated stablecoins like Tether. This move aims to curb the use of such financial tools for evading sanctions, especially as the Treasury Department has already blacklisted entities involved in facilitating these transactions through Tether.
This investigation sheds light on the complex and evolving nature of international trade, finance, and regulation in the digital age, especially regarding the use of cryptocurrencies in the context of geopolitical conflicts and sanctions.
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