Crypto Crime Costs Ukraine Billions: RUSI Report

A recent analysis by the Royal United Services Institute (RUSI) indicates that Ukraine stands to recover approximately $10 billion through improved cryptocurrency oversight, targeting lost revenue and combating illegal transactions. The study underscores the potential financial boost from enhanced digital asset regulations.

The security and defense think tank based in the UK, RUSI, warns that failure to act promptly could further destabilize Ukraine’s financial standing and national security.

The report states, “The distinct risks facing Ukraine are significantly linked to over-the-counter (OTC) crypto activities within the nation, its function as a hub for criminal activities, and the use of cryptocurrencies in procuring components subject to sanctions for the Russian military, including money mules.”

The study suggests Ukraine should prioritize attracting specific digital assets, such as stablecoins, recognizing the interconnectedness of cybercrime and illicit finance, and establishing clear and enforceable regulations. Authors caution that inaction risks Ukraine becoming a haven for laundering Russian funds while deterring legitimate cryptocurrency startups through excessive taxation and widespread corruption.

Ukraine’s attempts to regulate the crypto sphere began in 2018. The Ukrainian parliament passed the Law on Virtual Assets in February 2022, just days before Russia’s invasion. However, the law’s implementation is pending the passage of a separate taxation bill.

As part of its EU accession, Ukraine is required to align its virtual asset regulations with EU standards by the end of 2025. Furthermore, compliance with the Financial Action Task Force (FATF) rules on anti-money laundering and counter-terrorism financing is essential. Experts warn that Ukraine’s current “partially compliant” FATF status could be downgraded in the upcoming MONEYVAL assessment.

RUSI emphasized the significant financial drain caused by money-mule networks, locally known as “drops,” which reportedly siphon off $24 million from Ukraine’s budget each month. Despite banks closing 80,000 mule accounts in the previous year, criminals continue to recruit vulnerable individuals to launder funds for minimal compensation, sometimes as low as $120.

The threat is compounded by Telegram-based drug trafficking operations utilizing cryptocurrencies, with allegations that Russian actors are targeting Ukrainian soldiers to undermine their morale.

The report concludes: “Although not the originating source, Ukraine is increasingly viewed as a rising crypto-laundering hub, attributable to its geographic location, wartime vulnerabilities, and evolving regulatory landscape.”

Russia and crypto laundering

Similar patterns of Russian entities using neighboring countries for crypto laundering have also been observed in Kyrgyzstan.

In August, the UK and U.S. imposed sanctions on local crypto networks tied to the rouble-pegged stablecoin A7A5 and two local exchanges suspected of succeeding Garantex.

This prompted an appeal to the leaders of both countries from the Kyrgyz president, who denounced the sanctions as a politically motivated attack on the nation’s economy.

Ukraine has achieved some progress in sanctioning crypto firms associated with Russia. In July, they took measures against 19 Russian crypto mining operations, 17 digital asset companies, and five exchanges, along with other entities linked to Russia’s financial infrastructure.