Elliptic Connect’s “Crypto in Conflict” report examined the cryptocurrency operations of Russian military fundraising groups, which were further disrupted by the failed Wagner rebellion on June 23.
Although the number may still seem small compared to Ukraine, nearly two-thirds of these funds involve US-sanctioned entities, emphasizing the continued risks for virtual asset services.
Crypto Funds to Russian Forces Estimated at $20 Million
Entities sanctioned include a variety of individuals, groups, and informal networks that have embraced cryptocurrencies for a variety of reasons. For some, like the PMC Wagner mercenary group “Task Force Rusich”, they are a source of fundraising in addition to a comparatively more lucrative fiat donation campaign.
Within a year of the start of the invasion, Ukraine’s highly publicized and successful cryptocurrency donation campaign had raised at least $212 million. This constituted a formidable 20% of all major Ukrainian popular fundraisers. Meanwhile, pro-Russian military acquisition and disinformation groups had raised only $4.2 million.
However, since then, the identification and sanctioning of new Russian financiers by NATO allies has been greater. Elliptic’s research team calculates that pro-Russian crypto donations are very close to $20 million.
On February this year, Elliptic expressed via Twitter:
“Launching our latest report: Crypto in Conflict where we have conducted an in-depth analysis into the use of cryptoassets on both sides of the war – ranging from humanitarian causes to sanctioned groups suspected of war crimes.”
For others, cryptocurrencies are used more as an incentive. Senior officials of the so-called Donetsk People’s Republic, which counts promoters of cryptocurrency Ponzi schemes and sanctioned individuals among their ranks, claim to reward defectors and those who provide information on Ukrainian military positions with Bitcoin.
Task Force Rusich has suggested that its supporters may bury dead Ukrainian soldiers and demand Bitcoin from their families. This in exchange for the location of their final resting places.
Exchanges, Main Gateway to Cryptocurrency Transfers
Compared to Ukraine, which surpassed tens of millions of dollars in cryptocurrency donations in a matter of days after the full-scale invasion, the pro-Russian crypto commitment remains small. However, the increasing focus of sanctions regimes on Russian military equipment financiers emphasizes the continued need for effective compliance regimes by virtual asset services.
Notably, sanctioned pro-Russian entities have also participated in decentralized finance (DeFi) protocols, including decentralized exchanges, cross-chain bridges, and non-fungible token (NFT) services.
Regarding the destination, exchanges seem to play a fundamental role. Elliptic researchers looked at the types of virtual asset services that are typically exposed to Russian military fundraising using on-chain data. Tracing collectors’ cryptocurrency transactions reveals that centralized exchanges are by far the most common destination for funds.
Over 80% of observed funds originating from these entities end up on exchanges. This highlights the significant risks of penalty exposure for such services if compliance precautions are not taken.
This implies that various exchanges act as key entry and exit points for virtual assets used in Russian military financing. Nany of these entities are under international sanctions; therefore, the participation of exchanges in cryptocurrency transactions could lead to increased regulatory attention and possible legal consequences.
Virtual asset services will therefore need to take measures to mitigate risk and ensure compliance with sanctions regulations if they want to avoid legal complications and reputational damage.
By Marina Meza
