Sanctioned but Unstopped: Is Russia Using Garantex to Politically Distract from Its Ukrainian Stalemate?

When it comes to global politics, the money trail can be just as telling as military maneuvers. While most eyes are on Russia’s military actions in Ukraine, another story is quietly unfolding—one that also has Russia at its center but is happening far away in the Middle East. This isn’t about tanks or soldiers; it’s about cryptocurrency and a Russian crypto exchange called Garantex. This company is suspected of sending a lot of money to groups that the world considers dangerous. Why does this matter? Well, as Russia feels the squeeze from economic sanctions due to its actions in Ukraine, it looks like they might be trying to stir up trouble elsewhere as a distraction. So, let’s dig deeper into this and try to figure out what Russia might really be up to.

The Garantex Conduit

Garantex, a Moscow-based crypto exchange, has come under scrutiny for its alleged role in facilitating significant financial transactions to extremist factions.

Researchers from Elliptic identified a financing scheme where the exchange was instrumental in moving funds to Palestinian Islamic Jihad. The money shrouded in the anonymity of blockchain technology, flowed through digital channels before reaching the hands set to trigger unrest in Israel.

Moreover, the exchange’s operations are allegedly deeply intertwined with the Russian security system. Connections trace back to high-ranking security officials in Russia, hinting at a much larger geopolitical play.  According to another report by the Dossier Center familiar with the Russian secret services, a significant portion of the crypto exchange, specifically the Estonian Garantex Europe OU, is owned by Irina Chernyavskaya, an employee of the Russian tax office, and her partner Pavel Karavatsky. 

The report revealed that the couple shared an apartment and owned the same cars. Pavel Karavatsky is listed in many phone books as “Garantex” or “Garantex security guy.”  The Dossier Center article revealed that Karavatsky is reportedly the actual co-owner of the crypto exchange despite the share being registered under Chernyavskaya’s name.

According to the report, Karavatsky is close to Oleg Feoktistov, the former deputy head of the Internal Security Service of the FSB of Russia, considered one of the most powerful Russian security officials. Feoktistov, known for creating the “Sechin special forces” within the FSB, is widely regarded as a protege of Igor Sechin, head of Rosneft.  Karavatsky graduated from the Moscow University of the Ministry of Internal Affairs and previously worked as a “security guard” in RRDB and Peresvet banks associated with Feoktistov.

It is important to know that the United States imposed sanctions on Garantex to prevent Russian citizens from bypassing financial restrictions that were put in place after Russia’s full-scale invasion of Ukraine, according to a recent report by Wall Street Journal

However, despite the sanctions, sources close to Garantex have revealed that it has become the main channel for Russian citizens to move money in and out of the country. The US government stated that Russian cybercriminals are using the crypto exchange to launder their income. The WSJ report also revealed that Palestinian militants partially financed their operations through crypto on Garantex in the lead-up to the Oct. 7 attacks in Israel, highlighting Garantex’s growing role as a global conduit for illicit funds.

The report reads: “Digital wallets controlled by Palestinian Islamic Jihad, which joined Hamas in the attacks, received a portion of $93 million via Garantex.” The WSJ report also cited the analysis by researcher Elliptic. 

Furthermore, clients have reportedly used the exchange to convert their rubles into other currencies. Customers deposit rubles in cash at Garantex offices and receive cryptocurrency, mostly stablecoins, which they can then withdraw as hard currency abroad from the exchange’s network of local partners.

In July, the platform saw customer transactions totaling around US$865 million, which is more than triple what it processed the month it was sanctioned, according to crypto data provider Coinpaprika. Garantex was launched in 2019 and is one of Russia’s largest crypto exchanges.

Escalating Tensions Amid Economic Strain

The revelation of this illicit financial channel comes at a time when Russia is embroiled in an enduring conflict with Ukraine. The economic sanctions imposed by the US, aiming to throttle Russia’s aggressive stance, have started to bite into the Russian economy. Moscow, eager for a peace discussion, finds itself in a diplomatic void as the international community turns a cold shoulder.

However, the economic strain seems to be far from a deterrent. Instead, it’s driving Russia towards exploring alternative strategies. The reports on Garantex throw light on a possible Russian attempt to stir the pot in the Middle East, drawing the world’s attention away from Eastern Europe.

The facilitated flow of funds to Palestinian extremists amid Russia’s growing isolation raises serious questions. Is this a desperate attempt by Moscow to divert global focus from its actions in Ukraine? The orchestrated escalation in Israel could well serve as a smokescreen, providing Russia with a much-needed diversion.

Cryptocurrency: The New Frontier in Geopolitical Play

Cryptocurrency, with its promise of anonymity, has emerged as a new frontier in geopolitical maneuvering. Garantex’s alleged actions emphasize how crypto exchanges have become tools in larger political games.

Highlighting how cryptocurrencies and crypto exchanges have become tools for illicit endeavors, the Israeli authorities recently ordered the closure of over 100 cryptocurrency accounts on Binance, the world’s largest crypto exchange, linking them to Hamas following its attack on Israel. Millions in crypto assets have been seized, and information on up to 200 additional accounts is being sought. Binance confirmed it had blocked some accounts in compliance with international sanctions. Amid increasing concerns over terrorist financing through cryptocurrencies, Tether also froze 32 accounts containing more than $873,000 linked to “terrorism and warfare.”

The surge in transactions on Garantex post-US sanctions also highlights the urgency among certain Russian quarters to keep financial channels open, even if it means fueling discord in distant lands.

Additionally, the reports on Garantex’s illicit activities reveal the ease with which state actors, shrouded in the veil of digital currencies, can influence conflicts far beyond their borders. The crypto route not only bypasses international financial scrutiny but also blurs the trail back to the orchestrators of such clandestine operations.

Conclusion 

The story of Garantex is not just about a crypto exchange gone rogue. It’s a narrative into Russia’s multifaceted geopolitical strategies at a time of intensifying global scrutiny. Amid its ongoing conflict with Ukraine and the consequential economic strain due to U.S. sanctions, Russia appears to be seeking diversification in its international engagements.

The alleged financial support to Palestinian Islamic Jihad through Garantex signifies a calculated move to deflect international attention away from its activities in Eastern Europe. This raises concerns about Moscow’s intentions to further destabilize the already volatile Middle East as a diversionary tactic, posing a new kind of threat in international politics.