Chainalysis has shared key insights focused on Russia’s cryptocurrency pivot as well as legislated sanctions “evasion.”
In response to mounting financial pressures of Western sanctions, Russia enacted significant legislation “legalizing cryptocurrency mining and permitting the use of cryptocurrency for international payments.”
Chainalysis added that the bills were “signed into law on August 8th by President Vladmir Putin and crypto payment trials are slated to start this month.”
Chainalysis further noted that this “represents a significant departure from the government’s previous stance in the country, where the Central Bank of Russia (CBR) had pushed for a complete ban on cryptocurrencies as recently as 2022.”
Chainalysis also mentioned that the new laws, set to “take effect in September for cross-border payments and November for crypto mining, will enable Russian businesses to engage in international trade using cryptocurrencies and authorize approved entities to mine digital assets.”
Chainalysis pointed out that Putin has called on Russia “not to miss the moment” in regulating cryptocurrencies, emphasizing their growing role in global payments and potential to reduce reliance on the U.S. dollar.
Key officials, including bill author Anton Gorelkin and CBR Governor Elvira Nabiullina, have specifically acknowledged “that this legislative change is aimed at mitigating the impact of sanctions and facilitating international payments.”
Despite the recent legislation, Russia’s ban on “using cryptocurrencies for domestic payments remains in place.”
Nevertheless, this has not dampened “the widespread use of cryptocurrency within the country.”
In fact, Russia consistently ranks “among the top countries in our annual Global Crypto Adoption Index, consistent with our broader observation that blanket bans on cryptocurrency are often ineffective, as they do not significantly curb usage but rather push it into informal or less regulated channels.”
Concurrently, crypto-linked banking services “have also been on the rise in Russia prior to the recent legislation.”
Rosbank, owned by Russian billionaire Vladimir Potanin, paved the way “for cross-border cryptocurrency payments for business in June of last year, according to Vedomosti, with several other banks subsequently introducing similar services.”
The CBR is spearheading the 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.”
Approved mining entities will also be allowed “to use crypto to settle trades, according to official statements.”
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.”
The new legislation consolidates the CBR’s control “over cryptocurrency within Russia, enabling it to regulate and monitor these transactions closely.”
While the CBR is still testing its central bank digital currency (CBDC) with the digital ruble projected to launch in 2025, this legislation “allows the use of existing cryptocurrencies with central bank oversight.”
Russia has been exploring various methods “to circumvent the U.S. dominated financial system, including blockchain-based initiatives with the BRICS community and the potential launch of a gold-backed stablecoin with Iran.”
The Financial Messaging System of the Central Bank of Russia (SPFS) — Russia’s alternative to the SWIFT financial messaging system — is “another key component of this strategy, although its use remains limited.”
Per the Bloomberg report, authorities are exploring ways to legalize crypto exchanges. “We haven’t found a solution yet on how to do this,” said Finance Minister Anton Siluanov.
Nevertheless, according to reporting by Russian news outlet Kommersant, Russia is moving forward with plans to “launch two new crypto exchanges in St. Petersburg and Moscow.”
The exchange in St. Petersburg will reportedly “be supported by infrastructure from the St. Petersburg Currency Exchange (SPCE), though SPCE has denied involvement according to the state-run news agency Interfax.”
Despite the regulatory ambivalence, Russia is already “home to a thriving cryptocurrency ecosystem.
Some of Russia’s largest non-KYC exchanges, “such as Tetchange, 100btc, Bitzlato, Suex, and Garantex, have been housed in or near Federation Tower, a two skyscraper complex located within the Moscow International Business Center, also known as Moscow-City.”
While some of these services, like Suex OTC, have seen “a decline in activity following their designation by the U.S. Treasury Department, others, such as Garantex, have maintained a steady level of operations.”
Garantex is a central player in Russia’s crypto market and “likely to remain instrumental despite its designation by the Office of Foreign Assets Control (OFAC) and Office of Financial Sanctions Implementation (OFSI) in the U.S. and UK, respectively.”
This centralized exchange (CEX) has processed “a substantial volume of transactions by designated actors in Russia and Iran, demonstrating its utility for sanctions evasion.”
Under the new legislation, the Russian government could “officially or unofficially leverage services like Garantex, given its deep liquidity across major blockchains.”
Although Garantex has processed nearly $100 billion in transactions since 2018, this large-scale activity does not necessarily “equate to state-sponsored sanctions evasion at scale, and should be assessed with caution.”
It’s important to note that not all Garantex users “are Russian nationals or Russia-based, nor do they operate on behalf of the Russian government.”
Additionally, a great deal of sanctions evasion activity “occurs outside official government channels and takes place through traditional off-chain methods, such as private investment vehicles and offshore shell companies.”
Another exchange that could be leveraged “for crypto-based sanctions evasion is Exved, which has worked closely with InDeFi Bank, co-founded by Garantex founder Sergey Mendeleev and former KGB officer and media tycoon Alexander Lebedev. Exved has been facilitating imports and exports even before the new legislation.”
