Russian entities exploit Kyrgyzstan crypto boom to bypass sanctions 64% surge in dual-use goods to Ukraine: TRM Labs

Russian entities are leveraging Kyrgyzstan’s rapidly expanding cryptocurrency infrastructure to circumvent international sanctions and secure dual-use goods for use in the war in Ukraine, according to a report by TRM Labs. Kyrgyzstan’s “On Virtual Assets” law, enacted in January 2022, established a regulatory framework for virtual asset service providers (VASPs), spurring a surge in crypto activity. By October 2024, over 126 VASP licenses had been issued, with transaction volumes jumping from $59 million in 2022 to $4.2 billion in the first seven months of 2024 [1]. However, this growth has coincided with evidence of systemic abuse.

TRM Labs identified multiple Kyrgyz-registered exchanges operating as shell entities, including Grinex and Meer, which mimic the behavior of the banned Russian exchange Garantex. These platforms exhibit transaction patterns linking them to sanctioned Russian groups, such as the Rusich paramilitary organization, which has operated alongside Wagner Group forces in Ukraine [1]. The report highlights coordination between entities, such as Grinex’s rapid registration following the 2025 Garantex takedown and its use of a Russian-issued stablecoin, A7A5, shortly thereafter.

The findings raise concerns about Kyrgyzstan’s role as a transshipment hub for sanctioned activities. Bilateral trade between Russia and Kyrgyzstan reached $3.5 billion in 2023, with Russian investment in the country increasing by 23% in early 2024 [1]. Analysts note that Kyrgyzstan has become a critical node in the supply chain for dual-use goods, as Chinese exports of such items to Kyrgyzstan and Kazakhstan rose by 64% from 2022 to 2023, totaling $1.3 billion [1].

TRM Labs has called for stricter regulatory measures in Kyrgyzstan, including enhanced transparency requirements and mandatory physical residency for VASP registrants, to curb illicit activity [1]. The current legal framework allows foreign nationals to register VASPs remotely, creating opportunities for exploitation.

In parallel, Russia continues to explore cryptocurrencies as a tool for economic resilience. Last month, the Russian Agricultural Bank (RusAg) announced plans to evaluate crypto-based payment solutions for grain exports, with officials describing digital assets as a “convenient alternative instrument” amid sanctions limiting access to traditional financial systems [1]. The Bank of Russia also recently expanded access to crypto-linked financial products, permitting non-deliverable derivatives and securities tied to cryptocurrency prices [1].

The convergence of regulatory gaps and strategic geopolitical positioning has amplified risks of sanctions evasion through Kyrgyzstan’s crypto sector. While the country’s legislative reforms were intended to foster innovation, the absence of robust oversight has enabled bad actors to exploit the system for militarized purposes.

Source: [1] [Russia Uses Kyrgyz Crypto Hub to Evade Sanctions and Fund Ukraine War: TRM Labs] [https://cryptonews.com/news/russia-uses-kyrgyz-crypto-hub-to-evade-sanctions-and-fund-ukraine-war-trm-labs/]