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In brief
- A new report from TRM Labs found that Kyrgyzstan appears to be serving as a front for crypto platforms linked to shuttered Russian exchange Garantex.
- Russia-linked activity accounts for almost all of Kyrgyzstan’s crypto industry, which was “virtually nonexistent” prior to the invasion of Ukraine in 2022.
- Experts told Decrypt that Kyrgyzstan’s political environment creates “vulnerabilities” that can be exploited for illicit financial flows.
Russian individuals and groups are using Kyrgyzstan’s cryptocurrency ecosystem to evade international sanctions, according to research from UK-based blockchain intelligence firm TRM Labs.
Publishing its findings in a blog, TRM Labs reported that Kyrgyzstan appears to be serving as a front for cryptocurrency platforms and services linked to Russian exchange Garantex, which was shuttered in March after an international operation.
Its conclusions are based on analysis of transfers between Russia-linked entities and Kyrgyz-registered platforms, including transfers of the A7A5 stablecoin, which it previously reported has been used to move funds from Garantex to Kyrgyz-based Grinex.
The report also finds that many Kyrgyz platforms are registered with the same residential addresses, contact details and founders, behavior typical of shell companies.
In fact, Russia-linked activity accounts for almost all of Kyrgyzstan’s cryptocurrency industry, which the report states was “virtually nonexistent” a month before Russia’s incursion into Ukraine in February 2022.
“The recent growth of Kyrgyzstan’s crypto industry appears to be driven by Russian demand, not domestic usage,” says TRM Labs’ EMA Head of Policy Isabella Chase, speaking to Decrypt.
Kyrgyzstan’s pro-crypto pivot
Kyrgyzstan’s government passed a pro-crypto law in January 2022, effectively recognizing cryptocurrencies as property, while also establishing a registration regime for virtual asset service providers (VASP).
In conjunction with growing demand from Russia, the passage of this law enabled the Kyrgyz crypto sector to grow rapidly, with VASPs having a transaction volume of $59 million by the end of 2022, and then of $4.2 billion in the first seven months of 2024 alone.
Yet Chase reiterated that there “is little evidence of significant local retail adoption or organic demand within Kyrgyzstan itself,” implying that the Kyrgyz cryptocurrency industry is effectively an outgrowth of its Russian counterpart.
According to TRM Labs, “Many Kyrgyz-registered platforms, including Grinex and Meer, exhibit clear links to Russian exchanges like Garantex and facilitate large-scale ruble-to-crypto transactions using Russian-backed stablecoins such as A7A5,” Chase explained. She added that these platforms have become “key conduits for Russian entities—both legitimate and illicit—looking to access global financial systems amid sanctions.”
TRM Labs’ report also identifies some of the entities that have been using Kyrgyz exchanges in order to circumvent sanctions, including paramilitary outfit Rusich Group, which has registered wallet addresses with Envoys Vision Digital Exchange (EVDE).
The firm also found that EVDE and other exchanges have interactions with cross-border logistics firms and Chinese financial institutions, suggesting that Kyrgyzstan is playing an increasingly important role in helping Russia to procure dual-use goods (such as semiconductors and drones) for military purposes.
For example, bilateral trade between Kyrgyzstan and Russia was worth $3.5 billion last year, while imports into Russia via nations such as Kyrgyzstan rose as high as $20 billion in the first half of 2023.
In addition, TRM Labs also cited figures showing that Chinese exports of 45 particular dual-use goods to Kyrgyzstan and Kazakhstan increased by 64% between 2022 and 2023, reaching a combined value of $1.3 billion.
And there are currently no real signs that Kyrgyzstan’s cryptocurrency sector will stop expanding in the near future, with more than 126 VASPs now licensed in the country, and with its Ministry of Finance currently developing a domestic, USD-pegged stablecoin, USDKG.
A lack of checks and balances
Any potential progress is also likely hampered by Kyrgyzstan’s governance and political climate.
According to Altynai Myrzabekova, Regional Advisor for Eastern Europe and Central Asia at global anti-corruption organization Transparency International, Kyrgyzstan’s political environment is characterized by weak checks and balances, as well as increasing executive power, which “creates vulnerabilities” that can be exploited for illicit financial flows.
“While we have not independently assessed the specific use of Kyrgyz-based crypto exchanges by Russian actors,” she told Decrypt, “the broader regional context, including state capture, weak judicial independence, and opaque control of natural resources, suggests a high risk of such practices being enabled or overlooked.”
Kyrgyzstan scored 25 out of 100 in Transparency International’s 2024 Corruption Perceptions Index, a score which represents “serious concerns” about public sector integrity and transparency.
Myrzabekova told Decrypt that, “Without stronger safeguards, transparency measures, and the political will to enforce anti-money laundering and sanctions frameworks,” Kyrgyzstan remains “highly exposed to exploitation by corrupt actors and sanctioned entities.”
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