Russian military companies manage to circumvent Western sanctions and purchase weapons and drone parts for their war in Ukraine using cryptocurrency. The Wall Street Journal has reported on the matter.

Key points

  • Russian military companies, such as the Kalashnikov Concern, are struggling with restrictions on the import of dual-use parts (parts that can be used for both civilian and military purposes) imposed by US and EU sanctions.
  • The concern, which is the largest russian manufacturer of small arms, needed electronic parts for drones.
  • Andrey Zverev, a russian smuggler working with China, helps these companies circumvent sanctions by using Tether to pay for purchases. Tether is a cryptocurrency pegged to the US dollar, but unlike dollars in the banking system, its transactions are more difficult to track.
  • Zverev used Tether to transfer millions of dollars from Kalashnikov to an electronics distributor in Hong Kong, then moved the goods through Central Asian countries to avoid customs control.
  • The Garantex trading platform, which works almost exclusively with russian clients, plays a key role in this process, allowing users to convert rubles to Tether.
  • According to estimates, the volume of this shadow trade can reach $10 billion per month.

Meanwhile, the U.S. Treasury Department pressures Congress to pass legislation that would allow it to block transactions with U.S. dollar-denominated stablecoins like Tether.

In December 2023, the agency blacklisted a Moscow-based company that cooperated with an authorized russian bank to make payments through Tether.

Russia is increasingly turning to alternative payment mechanisms to circumvent US sanctions and continue to finance its war against Ukraine,

Brian Nelson, the U.S. Department of the Treasury’s Under Secretary for Terrorism and Financial Intelligence, said in his statement.

The use of cryptocurrencies to avoid sanctions and finance illegal activities is nothing new. For example, North Korea stole billions of dollars in cryptocurrency to fund its weapons program. In response, the UN called for stricter regulation of cryptocurrency transactions.