Chainalysis says Russia’s crypto infrastructure aims to skirt Western sanctions

According to blockchain analytics provider Chainalysis, the Central Bank of Russia (CBR) is spearheading efforts to develop financial infrastructure that will enable the country to use cryptocurrencies for international trade and circumvent Western sanctions.

Friday's Chainalysis policy and regulation report highlighted recent legislation passed by the Russian parliament that legalizes cryptocurrency mining and allows the use of cryptocurrencies for international payments. These bills were signed into law by President Vladimir Putin on August 8, with crypto payment trials set to begin this September.

"These recent crypto-forward legislative efforts are part of Russia’s broader efforts to develop alternative payments mechanisms to alleviate Western sanctions pressure while decreasing dependence on the U.S. dollar, which has been a long-term goal for Russia especially amidst increasing geopolitical tensions," Chainalysis stated in its report .

According to Chainalysis, the Central Bank of Russia (CBR) will oversee trial cross-border cryptocurrency transactions. The CBR is also testing its central bank digital currency ( CBDC ), the digital ruble, which is expected to launch in 2025. The report also added that approved mining entities will also be allowed to use crypto to settle trades.

“The CBR is spearheading an initiative to integrate cryptocurrency into Russia’s financial system for cross-border payments, creating an experimental infrastructure that allows approved Russian businesses and entities to use digital currencies for international trade,” Chainalysis Director of Investigations Valerie Kennedy said.

The report noted that Russia-based centralized cryptocurrency exchanges could be utilized to process cross-border payments. Chainalysis highlighted that some of Russia’s largest non-KYC exchanges, such as Tetchange, 100btc, Bitzlato, Suex, and Garantex, have main offices within the Moscow International Business Center and could potentially be used to facilitate sanctions-evading payments. "Under the new legislation, the Russian government could officially or unofficially leverage services like Garantex, given its deep liquidity across major blockchains," the Chainalysis report stated.

The report added that Exved is another exchange that could be employed for crypto-based sanctions evasion. Exved has closely collaborated with InDeFi Bank, co-founded by Garantex founder Sergey Mendeleev and former KGB officer and media tycoon Alexander Lebedev. Chainalysis pointed out that Exved had been facilitating imports and exports even before the new legislation was signed into law in August.

The blockchain analysis firm noted that Russia's initiative to establish a new crypto ecosystem for cross-border payments would introduce significant complexity for investigators. Despite this, the report added, the transparency inherent in  blockchain technology will provide unprecedented insights into Russia's tactics for evading sanctions.

Russian attempts at circumventing dollar-denominated world trade

According to Chainalysis, Russia has been exploring several methods to bypass Western sanctions, including blockchain-based initiatives with the BRICS community and the potential launch of a gold-backed stablecoin in collaboration with Iran.

Another critical element of this circumvention strategy is the Financial Messaging System of the Central Bank of Russia (SPFS), Russia’s alternative to the SWIFT financial messaging system, although its adoption remains limited.

Russia's recent shift marks a notable departure from the government’s earlier position. As recently as 2022, the Central Bank of Russia (CBR) advocated for a total ban on cryptocurrencies. But despite the new legislation, the ban on using cryptocurrencies for domestic payments within Russia remains in effect.