Russian entities using Kyrgyzstan's crypto industry to avoid sanctions: Report

Russian individuals and groups use Kyrgyzstan Cryptocurrency An ecosystem that avoids international sanctions, according to a study by UK-based blockchain intelligence firm TRM Labs.

TRM Labs published its findings on its blog, reporting that Kyrgyzstan appears to be acting as the forefront of cryptocurrency platforms and services linked to Russian exchange Garantex.

The conclusion is based on an analysis of the transfer between Russian-related entities and Kyrgyzstan-registered platforms. Stablecoinpreviously reported and used to move funds from Garantex to Kyrgyz-based Grinex.

The report also finds that many Kyrgyzstan platforms are registered with the same residential addresses, contact details, founders and founders typical of shell companies.

In fact, Russia-related activities account for almost all of Kyrgyzstan's cryptocurrency industry a month before Russia invaded Ukraine in February 2022.

“The recent growth of Kyrgyzstan's crypto industry appears to be driven by demand from Russia rather than domestic use,” says the policy director at TRM Labs. Decryption.

Kyrgyzstan Procrypto Pivot

The Kyrgyzstan government passed the Pro-Crypto Act in January 2022, effectively recognizing cryptocurrencies as property and establishing a registration system for virtual asset service providers (VASPs).

With the passage of this law, in connection with growing demand from Russia, the Kyrgyzstan crypto sector was able to grow rapidly, with VASPS trading volumes reaching $59 million by the end of 2024 and then $4.2 billion in the first seven months of 2024.

However, Chase reiterates that “there is little significant evidence of local retail adoption and organic demand in Kyrgyzstan itself,” meaning that Kyrgyzstan's cryptocurrency industry is effectively a growth of Russian counterparts.

According to TRM Labs, “Many of the platforms registered by Kyrgyzstan, including Grinex and Meer, provide clear links to Russian exchanges like Garantex, and use Russian-backed shaped coins such as the A7A5 to facilitate crypto transactions from large rubles,” explained Chase. She added that these platforms have become “an important conduit for Russian entities that have stopped accessing the global financial system amid sanctions.”

The TRM Labs report identifies some of the entities using the Kyrgyz exchange to avoid sanctions involving the Paramilitary costume Rusich Group, which has registered wallet addresses with the Empoys Vision Digital Exchange (EVDE).

The company also discovered that EVDE and other exchanges are interacting with cross-border logistics companies and Chinese financial institutions, suggesting that Kyrgyzstan is playing an increasingly important role in helping Russia procure double-use items (such as semiconductors and drones) for military purposes.

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

Additionally, TRM Labs cited figures showing China's 45 specific dual-use products to Kyrgyzstan and Kazakhstan, up 64% between 2022 and 2023, reaching a total of $1.3 billion.

And now there is no real indication that Kyrgyzstan's cryptocurrency sector will halt its expansion in the near future. Currently, more than 126 VASPs are approved domestically, and the Treasury Department is currently developing stablecoin, USDKG, for domestic US salaries.

Cheques and lack of balance

Additionally, potential advancements may be hampered by Kyrgyzstan's governance and political situation.

According to Altynai Myrzabekova, Transparency International, Global Anti-Corruption Agency, a regional advisor in Eastern Europe and Central Asia, Kyrgyzstan's political environment is characterized by an increased executive power that “creates vulnerabilities” that could be exploited due to illegal fiscal flows.

“Although we don't independently evaluate the specific use of Kyrgyzstan-based crypto exchanges by Russian actors,” she said. Decryption“The broader regional contexts, such as state capture, weak judicial independence, and opaque management of natural resources suggest that such practices are at a higher risk of being valid or overlooked.”

Kyrgyzstan scored 25 out of 100 on Transparency International's 2024 corruption recognition index. This is a score that represents “serious concerns” about public sector integrity and transparency.

Myrzabekova said Decryption Without stronger safeguards, transparency measures and political will to enforce money laundering and sanctions frameworks, Kyrgyzstan remains “very exposed to exploitation by corrupt actors and approved entities.”