Russia Uses Bitcoin to Fund Espionage, Launders $600 Million

An investigation has revealed that the Russian Federal Security Service (FSB) has been utilizing Bitcoin to finance espionage activities, including the recruitment of teenage spies. This method of funding covert operations has been traced through blockchain forensics, which has identified structured laundering patterns linked to the FSB.

One notable case involved Laken Pavan, a Canadian national who was recruited by the FSB at the age of 17. Pavan was coerced into spying for Russia after being detained in Donetsk while attempting to join pro-Russian forces. His handler, known as Slon, instructed him to travel across Europe to collect intelligence, with payments made in Bitcoin. Pavan received just over $500 in BTC while in Copenhagen before fleeing to Poland, where he turned himself in to authorities. He was later sentenced to 20 months in prison by Polish authorities.

The payment Pavan received was traced to two intermediary wallets by blockchain analysts. These wallets had received significant funds from a larger wallet created in June 2022, which had processed more than $600 million in Bitcoin. The transactions were routed through Garantex, a sanctioned Russian crypto exchange. Global Ledger’s analysis found that the wallets linked to Pavan’s payments operated exclusively during Moscow business hours, indicating a highly structured laundering network.

“Transactions from wallets linked to the FSB followed a structured laundering pattern, involving fund splitting, mixing with larger sums, and routing through unconnected deposit wallets,” Global Ledger said in its report. This case is not an isolated incident. Russian intelligence has used Bitcoin to fund multiple covert operations, including the recruitment of young Belarusians and Ukrainians to install surveillance devices and spread propaganda in Poland. Some individuals were even paid in BTC to commit acts of arson.

Recoveris, a blockchain forensics firm, has identified a network of 161 Bitcoin addresses linked to the FSB, with hundreds of transactions occurring within 6 a.m. to 6 p.m. Moscow time. Russia’s reliance on crypto extends to funding mercenaries in Donbas and payments to European politicians for disseminating pro-Kremlin narratives. The country is also exploring ways to use cryptocurrencies to settle grain export payments, aiming to bypass Western sanctions and modernize its trade infrastructure.

More recently, Russia’s central bank announced that it is allowing qualified investors limited access to crypto-linked financial products. Under the new guidance, banks and financial firms can offer derivatives and securities tied to cryptocurrency prices, though these products must be non-deliverable and settled in fiat. This move reflects Russia’s increasing integration of cryptocurrencies into its financial strategies, despite the risks and regulatory challenges involved.