Russian Middlemen Use Cryptocurrency To Bypass Sanctions, Fuel Shadow Trade For Weapons Parts

Andrey Zverev, a self-proclaimed Russian smuggler, has been using Tether USDT/USD, a popular cryptocurrency, to facilitate transactions for procuring high-tech equipment and weapons parts, helping Russian companies bypass Western sanctions.

What Happened: Zverev, a middleman for Russian companies, has been using Tether to facilitate transactions for the purchase of high-tech equipment and weapons parts, The Wall Street Journal reported. In one instance, Zverev used Tether to transfer millions of dollars from Kalashnikov Concern, Russia’s largest small-arms manufacturer, to an electronics distributor in Hong Kong.

Zverev wrote in a Telegram chat and has been using Tether to convert rubles into cryptocurrency and pay foreign suppliers in countries like China and the Middle East. This has allowed Russian companies to continue their trade despite Western sanctions.

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The U.S. Treasury Department has been pushing for legislation allowing it to block transactions in U.S. dollar-denominated stablecoins like Tether. The department recently blacklisted a Moscow company that used Tether-based payments.

"Russia is increasingly turning to alternative payment mechanisms to circumvent U.S. sanctions and continue to fund its war against Ukraine," Brian Nelson, Treasury's undersecretary for terrorism and financial intelligence, said in a statement.

Why It Matters: The use of cryptocurrencies to evade sanctions and fund illicit activities is not new. North Korea, for example, has been stealing billions in crypto to fund its doomsday weapons. In response, the UN has been calling for stricter regulations on cryptocurrency transactions.

On the other hand, Russia has been making moves to establish itself as a major player in the global cryptocurrency market. The country has announced plans to create a new global currency, establish specialized institutions for mining, and facilitate cross-border cryptocurrency transactions.

However, the use of cryptocurrencies for illicit activities has also raised concerns. Ethereum co-creator Vitalik Buterin has proposed using “privacy pools” to enhance the transparency and trustworthiness of the cryptocurrency market and weed out unscrupulous crypto traders.

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