Crypto exchanges in Estonia and Lithuania have come under scrutiny for allegedly aiding Russians in bypassing Western sanctions and laundering over €1 billion ($1.05 billion) in assets, according to an investigation by a group of international journalists. The report, published on VSquare news outlet’s website, was conducted by the VSquare team in collaboration with journalists from various news outlets including Delfi, Siena, Fronstory, Paper Trail Media, Der Spiegel, ZDF, and Der Standard.
The investigation reveals that Estonia has become a global hub for crypto companies due to its liberal crypto licensing system introduced in 2017. It is estimated that nearly 55% of virtual currency service providers globally, around 1,600 firms, are registered in Estonia, seeking the prestigious status of being an EU-licensed firm.
However, the report also uncovers numerous irregularities in approximately 300 Estonian-registered crypto companies. The investigation claims to have found ties to Russian intelligence, extensive money laundering operations, international fraud cases, and a lack of transparency. These companies have allegedly used their EU-registered licenses to launder or defraud victims of over $1 billion in crypto assets, leveraging the credibility associated with being licensed in the EU.
Furthermore, the investigation reveals cases of sanctions evasion by Russian individuals. Western sanctions imposed during the Ukraine conflict resulted in Russians losing access to many international financial instruments. Russian banks, in particular, were disconnected from the SWIFT interbank messaging system, limiting their ability to make international fund transfers. Crypto exchanges provided an alternative for cross-border transactions with near-total anonymity, which many Russians reportedly exploited.
The investigation uncovers specific examples of how these crypto exchanges facilitated sanctions evasion. For instance, the Russian private military group Rusich used nine cryptocurrency wallets in Estonia to raise at least $210,000 between 2022 and 2023. Coinsbit, an Estonian platform, enabled users to convert Russian rubles into Bitcoin, while MEXC, another exchange, offered ruble payments through its person-to-person mechanism. Payeer, a popular crypto exchange and payment processor, even published video tutorials on how to bypass Western financial sanctions using their platform.
In response to these illicit activities, Estonia tightened its anti-money laundering regulations in 2022, leading to the revocation of licenses for over 1,500 crypto companies. However, many of these firms allegedly relocated to nearby Lithuania, which has seen a significant increase in virtual asset firms. From only 20 firms in 2019, Lithuania now hosts over 800 such companies.
The investigation uncovers connections between one of these relocated crypto companies and Russia’s largest lender, Sber. MoneySwap OÜ, which operated the virtual assets platform Mercuryo in Estonia, moved to Lithuania in 2022 as MoneyAmber UAB. Journalists discovered that the shares of this company are managed through a Cypriot company called MRCR Holdings, which includes Akshin Dzhangirov, the brother of Sber’s Chief Risk Officer, among its shareholders. While it is not clear if the brothers were involved in sanctions evasion schemes, the report highlights that Akshin received about $300,000 in income from Sber in 2021.
Overall, the investigation underscores the challenges posed by the crypto industry in facilitating illicit activities, including money laundering and sanctions evasion. It emphasizes the need for stricter regulations and international cooperation to combat these issues effectively.