Smuggler Andrei Zverev 2022 received an order from the largest Russian military company Kalashnikov Concern at the end of It needed electronics for drones, which were among the most effective weapons against Ukrainian armored vehicles. After receiving the order, the man handed it over to a Hong Kong electronics distributor.
In turn, the United States tried to stop such transactions, and even sanctions-defying Chinese banks blocked payments from Russia.
However, A. Zverev found a solution to this problem. He used the cryptocurrency Tether to transfer millions of dollars to this electronics supplier. A few months later, when describing the deal to the group, Russian A. Zverev offered the same service.
“We will deliver everything you need to exterminate each other,” he wrote in a Telegram group. The smuggler indicated cryptocurrency as a method of payment.
Tether has become one of the world’s presumptive black market payment methods. Unlike money in the banking system, authorities have limited ability to track the use of this cryptocurrency around the world, according to The Wall Street Journal.
This crypto-currency is used very often in trade – every day, as much as 120 billion transactions are made with its help. dollars, which is often about double that of Bitcoin. in 2023 the amount of transactions exceeded 10 trillion US dollars – this amount is not significantly different from the transactions processed by the payment giant Visa during the last financial year.
Tether has become an indispensable tool for Vladimir Putin’s war machine. It helps Russian companies circumvent Western sanctions and buy so-called dual-use goods that are used in drones and other high-tech equipment. Individuals and companies using this technique make transfers in rubles to Russian bank accounts managed by intermediaries who convert the rubles into Tether and pay out the cryptocurrency to their foreign suppliers in places like China and the Middle East.
The US Treasury Department has been pushing Congress to pass legislation that would allow it to block transactions in dollar-denominated cryptocurrencies like Tether. Last week, the department blacklisted a Moscow company that worked with a sanctioned Russian bank to make cryptocurrency-based payments.
“Russia is increasingly turning to alternative payment mechanisms to circumvent US sanctions and continue to finance its war against Ukraine,” Brian Nelson, the US Treasury’s Under Secretary for Terrorism and Financial Intelligence, explained in a statement.
The private company responsible for this cryptocurrency, Tether Holdings, is owned by a small group of individuals. It distributes Tether in exchange for dollars it has invested in US Treasuries. Customers trade Tether on virtual public ledgers called blockchains or through private exchanges, sometimes to buy other cryptocurrencies or, as in the case of Russia, to pay for goods and services.
Tether Holdings did not respond to questions from The Wall Street Journal. In December last year, the company said it had launched a voluntary policy to freeze digital wallets used for Tether cryptocurrency transfers and related to sanctioned entities. Tether later said in a letter to U.S. senators that it “continues to make a positive contribution to the global financial ecosystem.”
The Wall Street Journal based Tether’s role in the Russian trade on interviews with individuals directly involved and thousands of messages exchanged between brokers and importers on the Telegram chat app. Many of them used pseudonyms, but the news portal identified the individuals described here.
The records also showed an electronics supply chain linking Zverev’s Hong Kong supplier, Kynix Semiconductor, to Kalashnikov’s main drone subsidiary.
In an interview with The Wall Street Journal, 41-year-old Zverev confirmed the specifics of his work and shared an invoice for the purchase of materials, which he said was provided to him by the Kalashnikov Concern company.
“They asked me to find some ways to buy parts in China and how to supply them,” the smuggler testified.
He added that he can speak openly because he is not breaking any laws in Russia. However, he later explained that he had been instructed not to discuss the subject. According to The Wall Street Journal, he was referring to Russian security forces, and for that reason he could not provide further details.
“I just don’t need any problems,” A. Zverev wrote in one message. “Neither in Russia nor in other places.”
Smuggler
While studying economics at Omsk State University in Siberia, A. Zverev did not see great prospects in Russia. While helping to manage the supply chain of a Russian company, he flew to Shanghai to look for new opportunities.
There, the man established contacts with local factories and organized supply routes to Russia, allowing the companies to avoid Russian customs duties.
“I became a smuggler,” he once wrote in a Telegram group.
He helped run Bitcoin “mining” operations in China and resold the chips to buyers in Russia to power their computers, which solve complex formulas to mine new bitcoins. He already used Tether to charge Russian customers. in 2022 the list of products sent to them listed their price in cryptocurrency.
Zverev preferred cryptocurrency over traditional banks because he was anonymous. The Tether Foundation rarely froze digital wallets because users were transferring “dirty money” through them, he wrote.
His preferred cryptocurrency trading platform was Garantex, a Moscow-based exchange. Launched in 2019, Garantex operates a network of cash exchanges where customers can exchange rubles for Tether and then for foreign currency.
When Russia launched a full-scale invasion of Ukraine, A. Zverev wrote on his personal blog that readers should protect their savings against the falling ruble and buy cryptocurrencies on the Garantex exchange. Because it worked almost exclusively with Russian clients, regulators in the US and Europe would not have been able to shut it down.
Two months later, the US blacklisted Garantex for being a haven for cybercriminals. However, according to A. Zverev, the business of the exchange continued to flourish. A Garantex spokeswoman denied that the exchange was aiding criminal activity and assured that it abides by Russian law, adding that the company was grateful to Mr. Zverev for his “high rating of our services.”
But the wave of Western sanctions made life difficult for Russian military companies.
The United States and the European Union have banned the export of certain industrial parts and components that have a dual military purpose. Banks in China and other countries popular with Russian expatriates have increasingly blocked payments in rubles for fear of losing business relationships with Western banks.
Shadow trade
After the start of the war in Ukraine, Russian importers looked for new ways to overcome the Western blockade.
in 2023 In April, Garantex founder Sergey Mendeleev gathered some of Russia’s most experienced cryptocurrency users in a Telegram group to discuss import issues. He directed inquiries about their payments in China to A. Zverev.
One group member explained that dual-use goods are imported “with great difficulty”. He claimed that paying with the cryptocurrency Tether would have helped his company “receive goods without problems”.
Mendeleev, who has since left Garantex, wrote that he was starting his own payment company, Exved, to help importers pay foreign suppliers in Tether cryptocurrency within hours. He refused to reveal the mechanics of converting this cryptocurrency “otherwise it would stop working for obvious reasons.”
He estimated that the volume of all “shadow trade” in one month reaches 10 billion. dollars. Others in the business agreed with this number. The Wall Street Journal could not confirm this data.
Mendeleev later explained that Exved was processing hundreds of millions of dollars of Russian foreign trade payments on Tether every month as soon as it started operating.
He refused to comment on the situation and said he would only answer questions from journalists from “unfriendly countries” if they met his conditions, including $1 million. dollar donation to a Russian charity.
“The Kalashnikov concern buys components for its drone project from China, bypassing sanctions through me,” A. Zverev advertised his services in a separate Telegram group.
Components for drones
After the start of Russia’s full-scale invasion, Zverev began arranging the shipment of electronics from China under a Kremlin-backed “parallel import program” set up to import wartime products without the consent of the original manufacturers.
The purchased electronics were loaded onto trucks in China and sent to Russia via Kyrgyzstan and Kazakhstan.
In a video seen by The Wall Street Journal, workers were seen gluing boxes together in a Chinese warehouse that had a facade that said the cargo was being shipped to Russia. According to Zverev, the goods were not declared at the border to minimize paperwork, and customs officers rarely inspected the cargo, a claim confirmed by The Wall Street Journal and other people involved.
“No one knows what we carry in the truck,” said A. Zverev.
He continued to use the Garantex exchange and converted rubles to Tether, transferring this cryptocurrency to the Tron blockchain system, which offers greater user privacy and low fees. He exchanged Tether for Chinese yuan at an over-the-counter broker in Hong Kong, then wired the money to the suppliers via a local bank transfer.
A spokeswoman for Garantex said it only operates in Russia and has no knowledge of how Russian companies can sell Tether abroad through intermediaries.
in 2022 in December, Zverev said that a subsidiary of Kalashnikov Concern, which he did not name, sent him an invoice for the materials. The document lists 248 types of electronic parts, including versions of the popular high-performance microcontroller STM32. Ukrainian forces found STM32 in intercepted drones manufactured by Zala Aero, a subsidiary of Kalashnikov Concern.
A. Zverev placed the order with Hong Kong distributor Kynix, which valued the order at approximately $70 million. yuan, that is, slightly less than 10 million. dollars. According to records from the data company Import Genius, Kynix has already been supplied goods to Russian companies, including at least several companies that manufacture drones. According to him, he delivered the order to Kalashnikov Concern via a standard “gray” transport route through Central Asia.
A. Zverev said that he used Tether to make the payment. He explained that he chose this method of payment in order to destroy the connection between the two companies. He aimed to make it more difficult for Western governments to trace these transactions.
“USDT is the main link in the chain,” he added, referring to Tether as an alternative name.
In December, the US tightened sanctions on Russia’s military industry as the Treasury Department imposed new restrictions on foreign financial institutions. Month of January. Garantex founder S. Mendeleev said that Tether has already proven to be beneficial for importers by helping them avoid secondary sanctions in other countries.
“If you’re looking for a way to pay the Iranians, you can easily pay them with Tether.” No problem,” he said at a conference in Moscow.
Based on information from The Wall Street Journal.
