WSJ: Cryptocurrency Helps Russia Buy Sanctioned Goods for Weapons Production

Liza Brovko

The cryptocurrency helps Russian companies bypass Western sanctions and buy dual-purpose goods, including for the production of drones and other high-tech equipment. It is about the so-called Tether stablecoin, the price of which is tied to the value of the dollar.

This is stated in an investigation by The Wall Street Journal.

Importers who help Russia circumvent sanctions make transfers in rubles to intermediary accounts in Russian banks, then convert the rubles into Tether, and then into foreign currency, which is received by foreign suppliers from the Middle East and China.

Journalists from The Wall Street Journal collected interviews with people involved in Russian trade using Tether, and analyzed thousands of messages in Telegram from the channels of brokers and importers.

They say that the Russian smuggler Andriy Zverev has a connection with the Hong Kong supplier Kynix Semiconductor and the main subsidiary of the Kalashnikov concern, which produces drones.

Andriy Zverev.

The Wall Street Journal

"The Kalashnikov concern asked me to find some opportunities, how to buy spare parts in China and how to supply them," Zverev himself answered the journalists and added that he can speak frankly because he does not violate any laws in Russia.

However, he later stated that "other people" had ordered him to remain silent, presumably referring to the Russian intelligence services.

As Chinese exports of consumer goods began to take over markets, Andriy Zverev established ties with local factories and arranged shipping routes to Russia so that the companies would avoid paying Russian customs duties. Later, he began charging Russian customers with cryptocurrency, including Tether.

The smuggler favors Moscow-based crypto exchange Garantex, which operates a network of cash exchangers in Russia and abroad that allow customers to exchange rubles for Tether and then for foreign currency. Garantex is under US sanctions.

After the start of the full-scale war, the USA and the European Union banned the export of some dual-use industrial parts and components to the Russian Federation. At the same time, Chinese banks increasingly blocked payments in rubles in order not to lose correspondent relations with Western banks. Therefore, Russian importers began to search for new ways to circumvent sanctions.

In April 2023, the former Moscow official and founder of Garantex, Sergey Mendeleev, created a Telegram group to which he added the most experienced Russian experts in cryptocurrency. Zverev was also there. Serhii Mendeleev said that he is opening his own payment company Exved to help importers quickly pay foreign suppliers using Tether. In August, he estimated the monthly volume of all "shadow trade" at $10 billion.

Meanwhile, Zverev advertised his services in a separate Telegram group, saying that thanks to him, Kalashnikov purchases the necessary parts for drones in China. With the start of the full-scale Russian-Ukrainian war, Zverev began organizing the transportation of electronics from China to Russia as part of parallel imports sponsored by the Russian government. Electronics purchased by Zverev were loaded onto trucks, most often in Shenzhen or Guangzhou, and sent to the Russian Federation via Kyrgyzstan and Kazakhstan.

In December 2022, Andriy Zverev showed a description of the materials that were needed for the Kalashnikov. There were 248 types of electronic parts, including versions of the popular high-performance STM32 microcontroller made by the Swiss semiconductor manufacturer. The Ukrainian military found STM32 in downed drones, including Lancet.

Andriy Zverev transferred the order to the Hong Kong distributor Kynix, which valued the order at approximately $10 million. And according to him, he delivered the order to "Kalashnikov" via his standard "gray" transport route through Central Asia. Payment was made using Tether.

The U.S. Treasury Department is asking Congress to pass legislation that would give the agency the ability to block transactions in U.S. dollar-denominated stablecoins such as Tether. Last week, the US Treasury Department blacklisted a Moscow-based company that cooperated with a Russian sanctioned bank to make payments through Tether.