How Russia is waging a crypto war in Ukraine…and losing

The war in Ukraine has marked the very First case in history where crypto has Played a significant role in a military Conflict right after Russia invaded Ukraine one year ago crypto donations Started flowing from all over the world To support the country's resistance in Total around 200 million dollars worth Of crypto was donated to ukraine-related Causes in the past 12 months digital Currencies have been a vital resource For thousands of Russians who oppose Putin's Invasion and fled their country But the war has also shown the Dark Side Of crypto Russian militia groups and Hackers have used the digital currencies To circumvent action and support the Kremlin's war effort so has crypto Really been a Force for good in the war In Ukraine and which side of the Conflict has used it in the most Effective way I try to find out in my Conversation with Andrew fearman the Head of sanction strategy at Che Analysis I'm Giovanni on this show we Challenge the ideas that shaped the World of crypto in each episode we Assessed a crypto narrative and Macroeconomic output or a potentially Disruptive technology only the most Solid ideas will make it to the other Side So Andrew your team match analysis Recently published a report where you

Discuss the impact of crypto on the Ukraine war one year after the invasion So what would you say was the main Impact of digital currencies on the Conflict Yeah absolutely so it's been a really Interesting year I mean we we first saw Immediately after the outset of the War Uh the people rally behind Ukraine and The Ukrainian government in setting up The you know crypto related donations to Support uh the Ukrainian efforts against Russia and we quickly saw just mere Months after the start of the war over 50 million dollars uh you know almost Immediately go into you know Ukrainian Donation support and as of today you Know that's well over 70 million dollars So uh you know we've seen a quick Adoption on the global scale we've seen A lot of people globally willing to help And support and the borderless you know Benefit of crypto really makes that Easier and so while that was the outset Of what we saw Um that got us thinking too to another Point which is this is also really one Of the first open source Wars that that We're getting involved in and so Thinking about Um you know everything that's available From social media Twitter feeds you know Being able to see what's going on in Real time that had us also thinking

About well if we're seeing all of the Good that this could be doing Um where could it be going bad and and Who could be leveraging crypto for the Wrong reasons and so that's kind of Where we started looking into things Like these militia propaganda groups Where we started looking at you know Broader scale sanctions of Asian Potential Um and and the use of ransomware as a Political tool from the hacktabis Perspective yeah and now let's talk About the Russians so we talked about How ukrainians have been raising funds In order to basically resist providing Aid to the country and so on but we also Saw that Russians have also used crypto In the conflict so maybe can you can you Give us some of the numbers that Surprised you the most or the most Significant numbers in terms of how Russians have used crypto in the Conflict So uh some of the numbers I like to Focus on are around the militia and Propaganda groups and so when I talk About those types of groups what do I Mean um these are these are groups uh Particularly on social media who are Soliciting donations to support either The war up uh the war upkeep or you know To maintain their writing on the the Propaganda Outlets

Um that they're you know that they're Engaging on and so essentially Requesting donations to help support via Crypto so when we think about the types Of things this money might be used for Um while we certainly aren't sure Exactly where it ends up uh from a you Know the goal is ultimately to take the Crypto transfer to Fiat and use it to Purchase supplies Um when it comes to these militia groups Uh they actually get quite specific in a Lot of instances about what they're Looking to buy with with the money that They receive um you know I I pulled one Just for example today but a recent Request was for helmets tactical Headphones winter boots and winter claws So when we're thinking about the types Of things that they're spending money on We're not talking about hundreds of Thousands or multi-million dollar items We're talking about you know items that You know keep these soldiers going During the conflict so five million Dollars while it may not sound like a Lot in comparison uh can certainly be a Benefit towards these militia groups Yeah and so I wanted to dive a little Bit more into this so when you talk About militias we are not talking about The Russian government yeah so these are Going to be your Grassroots organization So I mean we're not talking about Russia

State-funded donations which was also You know probably one of the reasons We're seeing some smaller numbers we're Really looking at you know individual Actors so somebody who's on the front Somebody who's you know trying to help Uh you know provide more military Resources to the front Um whether they have kind Connections in Moscow to move those you know Goods into The donbos region or not Um you know they're essentially just Trying to collect through whatever Outlets they have available to them and So that's where you see things like Bulletproof vests or drones Um you know being purchased uh or or Stating that they'll be purchased with The donations that they receive so That's interesting because we know that The U.S treasury Department other Regulatory bodies also in Europe having Post sanctions on Russian entities Because of the war in Ukraine and so I Was wondering why haven't those Sanctions worked in terms of preventing Those pro-russia fundraising activities With crypto So I wouldn't say that they're not Working there's been a significant Decrease Um in the engagement of these exchanges Um you know since these actors were Identified so I think one thing that's

Important to understand is it's not Necessarily the case that these actors Are operating from exchanges it's that They're having non-custodial wallets so They're holding their own wallets and Then transferring funds out to exchanges Um in order to get their Fiat transfer Point so I think you know obviously uh Without detection these actors wallets May not be known by uh in exchange that Was receiving funds from them so it's Really important for the the blockchain Analytics ecosystem to be monitoring These groups flagging them and giving Exchanges the opportunity to make those Assessments as well so now let's try to Explain how that works in practice so if A Russian sanctioned entity receives Some crypto donations in their nose Tutorial wallets and decides to cash out Through an exchange how can that entity Be stopped it's a great question so That's how blockchain that's where Blockchain analytics comes into play so Um you know exchanges uh are often using Blockchain analytics tools Um or even sometimes their own internal Tools in order to flag transactions and Activity with specific actors Um so when an entity is identified as or An address is identified as belonging to One of these groups Um the blockchain analytics companies Will uh you know provide that

Information into their product which Then uh exchanges can utilize to monitor Their transactions one thing to keep in Mind too is that exchanges cannot stop Funds from coming inbound but it's what They do with those funds once they Receive the um that really matters so I Think context is a little bit important There but essentially what will happen Is um on an inbound transaction so where An exchange would be receiving funds From that group they'll get an alert When those funds come in and then they Can choose to take the relevant Regulatory action depending on what Their jurisdiction is alternatively on Outbound transactions so let's say a Custom urgent exchange wanted to go Donate to one of these organizations Those funds could be notified and Alerted before they are are sent out by The Exchange themselves so as you said Those actors like task force crucich and Other munition groups are not so very Sophisticated in the way they use crypto So let's say that they learn the lesson And they see that by sending crypto to Exchanges that have some ties with the U.S financial system they are likely to Get their money blocked or frozen but What if they develop a more Sophisticated approach is there a way They can move their funds and cash out Through other venues

So that's where we've seen the the high Risk exchange usage and and while the High risk exchange haven't been as used The thing is that we also see keep in Mind is Um that ofac and other us Regulators Including fincen You know are are keeping track of of who These operators are in the space and you Know we've seen guarantex get sanctioned By OFA we've seen bits Lotto um which Was also another well-known uh you know Exchange in Russia that was facilitating Ransomware payments and money laundering Um get subject to a fincen order which Is Um you know the financial crimes uh you Know regulator in the US as well so I Think you know in these high-risk Exchanges being used the more they're Used for illicit activity uh the more They end up being on uh you know on Target lists for for regulatory bodies And sanctioning bodies like ofac or or Others right but if they are outside the Jurisdiction of the US and they don't Touch the US dollar uh then they can Continue operate but I guess that's not Really feasible right conceptually but Also if they want to interact with you Know regulated exchanges Um you know the ecosystem will be able To see the types of activity that They're engaging in and

Um you know exchanges or financial Institutions that are subject to U.S Jurisdiction May de-risk doing business With them which which limits their Accessibility to uh the global ecosystem So now let's touch upon the role of Ransomware attacks in the war in Ukraine So in a recent report that you published Not long ago you established that in 2022 around 450 million dollars were stolen in Crypto we're stolen through ransomware Attacks and the majority of them were Paid to entities that were believed to Be based in Russia so can you tell us More about what entities are we talking About out yeah sure so um Conti which is A prolific uh russia-based ransomware Actor uh obtained over 60 million Dollars from victims in 2022 and um Where we really wanted to highlight it In for this report is you know what the Intent and purpose behind a lot of their Attacks are and you know when it comes To ransomware payments a lot of the time Uh Bad actors have you know some sort of Political agendas behind what they're Doing so uh Conti actually had uh Notified uh in that the day after the War started actually Um that they're officially announcing Their full support for the Russian Government so contia as a group was at Least standing behind uh the Russian

Government in in their activities Um additionally we saw another Pro-russian hacktivist group by the name Of kilnet uh trying to Target countries That are supporting Ukraine in addition They've even gone to social media to Solicit donations but those numbers are Are pretty insignificant in comparison To the to the ransomware numbers okay so That's quite impressive because if we Assume that all those ransomware files Were paid to Russian entities that Supported the war in Ukraine that would Mean that Russia basically managed to Gather more crypto than Ukraine in 2022. So again this is the amount uh that has Been uh made ransomware payments made uh It doesn't fully account for any Ransomware assets that were C so Um I don't have those numbers offhand I'll have to come back to you Um but a portion of that you know very Well could have been seized by law Enforcement or Um you know through uh coordinated Efforts between exchanges and law Enforcement Um So that 456 million number isn't Explicitly all Ill-gotten gains necessarily thanks a Lot to Andrew for giving your Perspective on these numbers and yeah Let's keep in touch for probably other

Chair analysis reports that you're gonna Release in the future Absolutely thanks for having me Giovanni

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