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Higher Profits Are Recorded by the Moscow Crypto Exchange Under OFAC Sanction

More than a year after the US Office of Foreign Assets Control (OFAC) designated Garantex for facilitating illicit activity, the Russian crypto exchange is enjoying higher profits than ever, according to research by the Wall Street Journal (WSJ). According to the WSJ, the exchange has been used to move Russian rubles abroad and fund the Palestinian Islamic Jihad, associated with the recent Hamas attack on Israel.

“What stands out about these entities is that their role in financing and facilitating criminal activity was well known, even before they were subject to sanctions,” commented Deputy Secretary of the Treasury Wally Adeyemo shortly after the exchange’s designation. “In too many cases, some investors and firms in the crypto ecosystem are willing to look the other way when jurisdictions like Russia offer a haven to criminals abusing digital assets.”

Garantex Moves Billions

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According to the report’s sources, Garantex’s activity has spiked as the Treasury has restricted money flows in most of the Russian banking sector. According to two blockchain analysis firms, the crypto exchange may have moved between $7 and $30 billion since the February Russian invasion of Ukraine. 

In chat messages, a Garantex administrator assured clients that the OFAC sanctions would be “good advertising.” The firm’s communications director, Evgenia Burova, denied the company facilitated money laundering, saying the company’s growth paralleled the wider growth of the crypto market in Russia over the last year.

Treasury sources cited by the journal said Garantex is currently under close review. They also said steps are being taken to curtail its activity and that individuals involved in its cross-border transactions may be sanctioned in the future.

Are Sanctions Evaders Using Crypto?

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During a Senate Banking Committee hearing last year, the president of the Blockchain Association of Ukraine argued that large-scale crypto-enabled sanctions evasion was effectively impossible. Others at the meeting echoed his skepticism.

Yet sanctions-related transaction volumes climbed 152,844% from 2021 to 2022, according to a 2023 Chainalysis report. Forty-three percent of the $20.6 billion in illicit transactions in the period researched were connected to sanctioned entities.

According to the report, transactions by Garantex represented most of the sanctions-related activity observed in 2022. But it isn’t the only platform that’s hit headlines or gained regulator scrutiny.

In November 2022, Reuters reported information from Chainalysis showing an Iranian entity known for supporting sanctions evasion had moved nearly $8 billion through another leading crypto platform. In August 2023, reports indicated sanctioned Russian entities were using the same platform to move money, despite its claims to the contrary.

Also in August, US authorities arrested Tornado Cash’s co-founders on charges including sanctions evasion. 

AML Compliance for Crypto Firms

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Sanctions in response to conflicts like Russia’s war on Ukraine have further shifted pressure onto decentralized finance and crypto platforms, which have become more appealing to illicit actors as they seek less transparent ways to move money. 

These risks make it crucial for crypto firms to detect and prevent this activity rather than risking liability for sanctions violations. 

This includes: 

  • Ensuring access to up-to-date sanctions and PEP data for screening and monitoring tools. 
  • Thoroughly screening new customers against sanctions lists as part of their customer onboarding due diligence.
  • Regularly re-screening existing customers
  • Monitoring IP addresses to identify transactions involving high-risk jurisdictions. 
  • Identifying red flags, such as rapid transactions involving multiple wallet addresses, anonymity-enhanced cryptocurrencies such as Monero, DASH, or ZCash, or a cryptocurrency mixing service.

For a broader view on detecting illicit finance risks, firms can consult the Financial Action Task Force’s (FATF) report on money laundering and terrorist financing red flags in crypto.

A Guide to Anti-Money Laundering for Crypto Firms

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As sanctions evasions continue to hit the headlines, how can crypto providers ensure their AML programs are risk-based?

Download the full report


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