The Ukraine government has shown the significant role cryptocurrency can play during the most turbulent of times. The Ukrainian crypto crowdfunding effort has surpassed over $50M since the government began its crypto efforts on February 26, 2022, by announcing plans to accept “cryptocurrency donations” on its official Twitter handle.
The Ukrainian government made its announcement by sharing a Bitcoin and Ethereum wallet address for interested crypto donors. According to blockchain analytics platform Elliptic, those two wallet addresses have received $10M and $16M worth of Bitcoin and Ethereum, respectively. While these crypto donations have played a positive role, a report by Chainalysis shows the dark side to this story.
Cyrptocurrency’s role in the conflict
More than a month after Russia’s invasion of Ukraine, we are getting a better understanding of cryptocurrency’s role in the conflict. New York-based blockchain data platform Chainalysis estimates that people around the world have donated $56M in cryptocurrency to the addresses provided by the Ukrainian government. The number is slightly higher than the one shared by Elliptic earlier.
“The Ukrainian government and an NGO providing support to the military have raised $50.9 million, through more than 89,000 crypto asset donations since the start of the Russian invasion,” Elliptic wrote in a blog post earlier this month.
This ability of the Ukrainian government to raise millions of dollars in the form of decentralised assets shows that cryptocurrency can succeed in its intent. Cryptocurrency was meant to enable cross-border payments with ease but crypto’s rule during this war shows that crypto owners can be as generous as those with regular assets.
Over $60M contributed, with $10M donated in a few days!
— Aid For Ukraine 💙💛 (@_AidForUkraine) March 19, 2022
Thanks @FinancialTimes & @CristinaCriddle! “As the war has continued, the government has refined its approach. This week, it launched an official @_AidForUkraine website”#HelpUkraineWithCrypto at https://t.co/nEFnqSk4Pw https://t.co/hI0eHG81He pic.twitter.com/RsMuOuIEhn
While the largest donation to the Ukrainian government has come in the form of Ethereum and Bitcoin, we would be mistaken to not mention other crypto organisations that have mobilised to help raise cryptocurrency donations. The TRON foundation and the exchange Kuna have followed the Ukrainian government’s lead to ask for donations.
The Ukrainian government has begun accepting Polkadot donations, including the $5M donated by Polkadot founder Gavin Wood. Ukraine Vice Prime Minister Mykhailo Fedorov even welcomed donations in the form of Dogecoin, the most popular meme coin out there. From Solana to Everstake, Ukraine has shown cryptocurrency can be used to save lives during such difficult times.
The role of cryptocurrency is not limited to the Ukrainian government but an NGO called Come Back Alive, which was suspended from Patreon for “funding military activity, has also received “several million dollars in crypto donations.” UkraineDAO, a decentralised autonomous organisation, has auctioned off an NFT of the Ukrainian flag to raise $5.6M worth of Ethereum in aid of Ukraine.
Are Russians using crypto to evade sanctions?
While the positive side of cryptocurrency and its clever use as a fundraising mechanism by Ukrainians has dominated the news, the negative side is also coming to light. As soon as the US, the UK and the European Union imposed sanctions against Russian oligarchs, their family members and their businesses, including removal of select Russian banks from the SWIFT system, the law enforcement, regulators, and compliance teams are now looking at how Russia’s business and political elites could use cryptocurrency to evade sanctions.
While testifying before the US Senate, Chainalysis co-founder Jonathan Levin said there is no direct evidence that Russians are using cryptocurrency to evade sanctions but it remains a reasonable concern. Levin says the transparency offered by most popular, liquid blockchains makes it difficult for sanctioned Russians to “launder large amounts of cryptocurrency.”
“By mapping a single cryptocurrency wallet address to an illicit actor, whether that be a ransomware attacker or sanctions evader, law enforcement can unlock immediate insight into the entire network of services that facilitate the actor,” Levin says.
A look at possible cryptocurrency-based Russian sanctions evasion
It is evident that Russians are unable to launder large amounts of cryptocurrency due to sanctions and the transparency adopted by major blockchain platforms. However, Russia accounts for a disproportionate share of cryptocurrency-based crime globally. It is also home to a number of cryptocurrency services that have been implicated in money laundering activity. In isolated instances, Chainalysis says there are on-chain indicators to suggest Russian actors may be moving funds. Here is how they could be evading sanctions:
- Russian whales moving funds: Last month, Chainalysis reported there are over 4,000 ‘criminal whales’ holding over $25B worth of cryptocurrency. Now, it is monitoring transactions involving whales or users based in Russia. A whale is a private wallet holding $1M or more worth of cryptocurrency. The blockchain data platform has tracked just over $62M worth of cryptocurrency sent from Russia-based whales to other addresses between the start of the invasion and March 21. It further notes that most of these addresses are associated with OTC desks and exchanges, making them high-risk transactions. However, the Russian whale sending hit its highest levels during the week of February 28, which could be an immediate reaction to the invasion. This data alone cannot be constituted as evasion of sanctions since there is no way to know if the wallets are controlled by sanctioned individuals or entities.
- Sbercoin: Sbercoin is a cryptocurrency issued by Sberbank, the biggest bank in Russia and one of the first Russian businesses to be sanctioned following the Ukraine invasion. Sberbank gained a licence to engage in digital assets on March 17 and CoinMarketCap notes total transaction volume of roughly $4.5M. While the transaction volume remains low, the trading of Sbercoin will be in violation of sanctions.
- Use of high-risk services: Chainalysis also sees Russian entities using high-risk services like sanctioned OTC desk Seux to hide or move their wealth. These high-risk services have lax compliance requirements and enable money laundering. So far, none of the high-risk services have shown spikes in inflows or outflows since the sanctions were announced.
- Hydra: Hydra is the world’s largest darknet market and is prominently used in Russian-speaking countries. However, it also reportedly offers sophisticated cash-out services designed to move illicit cryptocurrency. It is seen as a possible vehicle for sanctioned Russians and Russian entities to launder money.
- Mining: Russia could follow Iran and turn to mining to gain access to capital and make up for “sanctions-related deficits in international trade.” According to the Cambridge Bitcoin Electricity Consumption Index, Russia ranked third in share of global hashrate for Bitcoin as of August 2021. However, it has received substantially more cryptocurrency from mining pools since the beginning of 2022. The increased electricity consumption by crypto miners in some parts of Russia soon after the invasion is indicative of such a move.
- Ruble-denominated trading activity: Another on-chain indicator is Ruble-denominated trading activity, which Chainanalysis is tracking using exchange order book data provided by Kaiko. This is not an effective tool for large-scale sanctions evasion and ruble trading volumes have continued to fall and spike periodically.
What about Russian cybercriminals and ransomware operators?
The ongoing invasion of Ukraine by Russia and the crippling effect of all the sanctions is likely to result in a new level of cyber warfare. US President Joe Biden recently warned all American companies and entities to be prepared for Russian cyberattacks. While cybercrime won’t constitute sanctions evasion, it could be a method for Russia to gain access to capital.
Soon after the invasion began, Conti, the most active ransomware group of 2021, announced its loyalty to the Russian government. The group promised to launch cyberattacks against those who moved against Russia. Conti could use cyberattacks to lock corporations out of critical systems and ask for ransomware, which could be used to fund the ongoing invasion.
Ukrtelecom, the state-owned telecommunications company in Ukraine, confirmed this week that it experienced a disruption in internet service after a “powerful” cyberattack. While the attack was repelled, it demonstrated Russia’s attempt to stop communication or flow of information in Ukraine as it faces stiff resistance from Ukrainians.
For now, it seems that Russian businesses and entities sanctioned by the US and its European allies have not been successful in evading sanctions or laundering their money. With the war having entered the second month and ceasefire not in sight, the sanctioned Russians might look for ways to funnel their money and thus evade sanctions. The one thing to watch would be whether authorities are able to stop them on their tracks.
