Since the Russian invasion of Ukraine, the EU has imposed more than twenty sanction packages on Russia. As a result, the country is virtually completely excluded from international payment traffic. But the Russians have found a way around this: through their own parallel financial system, the Kremlin still obtains crucial components for its war machine. Crypto is an important part of this.
Binance, the world's largest crypto exchange by trading volume, will therefore stop processing transactions linked to Russia starting next week. Binance is blocking these transactions due to the latest EU sanctions.
Nevertheless, Russia will remain able to source goods that previously came from Europe from other countries. "The West has frozen enormous amounts of Russian assets and sanctioned many goods. We are also trying to exclude Russia from financial markets. But they still manage to circumvent the restrictions," says sanctions law attorney Ivo Ammar.
Initially, Russia did this by routing transactions through banks in Russia and China. But out of fear of becoming targets of Western sanctions themselves, large Chinese banks are increasingly blocking Russian payments to suppliers of weapons and weapon components.
Partly for this reason, the Russian government is turning partly to cryptocurrencies, says sanctions specialist Yvo Amar. "Crypto is subject to less oversight. That makes it quite easy for Russia to carry out payments that normally go through banks."
Fugitive oligarch
A key figure in this invisible world is Ilan Shor, a fugitive Moldovan oligarch. In 2014, he siphoned off the equivalent of 1 billion dollars from banks in his home country, then amounting to no less than 12 percent of the entire gross domestic product of Europe's poorest country. He was convicted and fled to Russia to avoid his sentence.
There he was tasked with using his financial expertise for the Kremlin. In 2024, he founded the company A7, which created the system through which Russia can launder rubles via various companies.
A7 helps pay for all sorts of things, from military parts to luxury cars and imported fruit. To circumvent Western sanctions, A7 moves money through a network of shell companies in countries such as Kyrgyzstan, Hong Kong, and the United Arab Emirates, concludes Open Source Centre, a London-based research group that originated from the British think tank RUSI.
Own crypto
At the beginning of last year, the company also launched its own cryptocurrency: the A7A5. This is a stablecoin, meaning its value is linked to the value of "real" money, in this case the Russian ruble.
"The Russians convert rubles from a bank account into the ruble-backed A7A5," explains Tom Keatinge. Keatinge works at RUSI and advises governments worldwide on tackling illegal financing. "After that, they convert A7A5 coins into another stablecoin backed by the dollar. At that moment, they have crypto that can be spent anywhere in the world."
In this approach, Kyrgyzstan is a crucial link. The country has close ties with Moscow but, unlike Russia, is connected to the international banking system. This allows the country to serve as an intermediary for Russia to convert rubles and crypto and pay worldwide.
'Sanction pressure remains important'
Out of fear of being completely cut off from the Western market (due to the threat of sanctions), Kyrgyzstan recently pulled the plug on several crypto companies. As a result, A7 has expanded to the United Arab Emirates and Belarus. "We must acknowledge that the limits of sanctions law have somewhat been reached," says sanctions law attorney Ammar.
The Russians will always be one or two steps ahead, warns Keatinge. "But the pressure we continue to exert costs Russia money and effort. Sanctions will not end the war, but they do put pressure on Russia's ability to obtain the necessary resources and finance the war. And that is precisely the function of sanctions: sustained pressure."
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