Russian separatists in the Donbas region of Eastern Ukraine created and marketed their own cryptocurrencies around the world in an effort to avoid international sanctions prior to February’s full-scale invasion, a report has found.
A new investigation from the Centre for Information Resilience outlines the way high-ranking members of the Donetsk People’s Republic (DNR) – an unrecognised self-claimed state within Eastern Ukraine – used social media and app stores to promote and propagate their cryptocurrency schemes.
The cryptocurrencies Prizm and Ouroboros were both created with in-built mechanisms that reward users who sign on other people, similar to a multi-level marketing scheme.
The coin’s creators, including Alexander Lavrentyev and Alexei Muratov, actively promoted the cryptocurrency schemes to people in developing countries.
It’s well known that the world of cryptocurrency is rife with scammers but what makes Prizm and Ouroboros notable is the connection their main players have with the Russian separatist movement in Eastern Ukraine.
Muratov was sanctioned by the United States in 2017 following allegations he helped raise funds to aid the separatist regions Donetsk and Luhansk.
Lavrentyev was an aide of Denis Pushilin, the head of the DNR, who was recorded discussing the assassination of former DNR leader Aleksandr Zakharchenko shortly before he was killed.
Elise Thomas, author of the study, said the ease with which these men operated their cryptocurrency schemes was a troubling sign for financial regulators and investors whose money is tied into the broader ecosystem.
“It appears to have been alarmingly easy for high-profile members of a sanctioned armed separatist group to create and market a cryptocurrency scheme over several years,” she said.
"Most directly, these schemes are harmful to their victims.
“Prizm, in particular, has been intentionally marketed to ‘investors’ in the developing world with lower levels of digital literacy, who may not have had the ability to assess the financial risks they were taking.”
Muratov proudly ran conferences in Timor Leste, Indonesia, and India in order to sell crypto and spread his ideology ‘Change the World Together’ which, in language not uncommon to pockets of other cryptocurrency communities, railed against traditional financial markets and called for “a new financial model”, complete with decentralised currencies.
Both Prizm and Ouroboros are dead projects whose values have flatlined following months, or years in the case of Prizm, of trading activity, according to CoinGecko.
The investigation once again highlights how cryptocurrencies could be used to evade sanctions, a concern that has been raised since international efforts sought to sever ties with Russian oligarchs following the country’s invasion of Ukraine in February.
Blockchain analyses last month revealed high volume of cryptocurrency transactions in the wake of sanctions against Russian oligarchs.
The suggestion was that decentralised finance (DeFi) markets were being used to funnel money out of the Russian ruble and into other fiat currencies like the US or Australian dollar in order to keep the money’s value and function.
Speaking at Blockchain Week 2022, Senator Andrew Bragg – who has led the government’s reviews into cryptocurrency, its use, and the burgeoning financial sector around it – said the potential for crypto as a method to sidestep sanctions was of serious concern for investors.
“We can’t have a situation where a product which is used by millions of people can become a backdoor for sanctions,” he said.
“When individuals, businesses, investment funds, pension funds, sovereign wealth funds, are being compelled to divest from Russian assets, it doesn’t make sense to allow crypto to provide a back door.”