Shell companies, Kyrgyz firms, and cryptocurrencies: The Kremlin’s phantom network to evade sanctions

The Russian invasion of Ukraine is approaching its fifth year. Since February 24, 2022, Europe and the United States have rolled out a battery of sanctions intended to strangle the Russian economy to the point where regime change would be the only viable outcome for the Kremlin. The wave of restrictions, however, has several loopholes — some deliberately left by the West to preserve certain exchanges, such as a limited purchase of hydrocarbons.

It would not be accurate to say the restrictions have not been successful: Russia’s acquisition of dual-use military equipment has been constrained, and the real economy faces a serious crisis compounded by higher export and import costs, curbing the Kremlin’s ability to finance its war. Moscow, however, is not yielding: it has found increasingly complex ways to avoid economic collapse and limit its isolation.

One of the EU’s first measures was to exclude several Russian banks from the SWIFT payment platform in order to hinder international payments. In the following months new sanctions targeted companies linked to Russia and, in December 2023, then-U.S. president Joe Biden signed an executive order threatening secondary sanctions on financial institutions that processed transactions connected to Russia’s military-industrial complex.

By then Russia was already feeling the effects of growing isolation. The Kremlin’s response was to promote a parallel financial structure aimed at keeping payment channels to the outside open. Thus A7 was born: a financial network founded in Kyrgyzstan, backed by Moscow and built through a constellation of shell companies in jurisdictions such as Kyrgyzstan, Hong Kong, Turkey and several African countries.

“It’s a company-creating machine,” a sector source says. This infrastructure, which processes payments and issues a stablecoin called A7A5, operates as a channel allowing Russian capital to keep moving through international financial conduits without raising suspicions, according to a recent report by OpenSource Center with blockchain analysis firm TRM Labs.

The origins of A7 are as enigmatic as its name. The person pulling the strings of this corporate network is Ilan Shor, a Moldovan businessman implicated in one of the largest bank frauds in European history. He helped divert nearly $1 billion (€886 million) from three of the country’s banks in an operation that was extremely complex and planned over years, ultimately costing Moldova 12% of its GDP.

Accused of money laundering and embezzlement, Shor fled to Russia, where he arrived in 2023 on a private jet owned by the oligarch Roman Abramovich. Moscow welcomed him despite having barred his entry a decade earlier for using false diplomatic license plates. There he embarked on a new mission: helping the Kremlin circumvent financial isolation.

In the blink of an eye, one of the architects of Moldova’s bank fraud became the mastermind of A7. The network began to take shape in spring 2024; within months it obtained licenses from Russia’s central bank to operate as a distributor, broker and securities depository. Several satellite companies were then established — such as A7 LLC, A7-Agent LLC and A7 Technologies LLC — to provide financial services and activities related to wholesale trade in fuels, metals and commodity transactions.

But to reconnect the country to the international financial system, an access route was needed. A7’s tentacles crossed national borders: the company wove a web of shell companies in Kyrgyzstan, which became the connection point to the international banking system, and in Hong Kong, China, Turkey, the United Arab Emirates and several African countries. Although formally registered in those countries and headed by local businessmen, these entities are linked to or controlled by A7 and serve to obscure the origin and destination of Russian funds. Hence the importance of locating them far from Moscow. TRM sources estimate these firms operate in at least 20 countries.

By holding foreign bank accounts, these entities have access to multiple currencies, enabling them to make payments to foreign companies on behalf of Russian clients. That is how the Kremlin was able to move more than $6.9 billion through international banks such as Standard Chartered, Citigroup and Deutsche Bank, according to an investigation by the Financial Times. Part of that money was used to buy military equipment.

Yet these operations hardly raised suspicions. In addition to an extensive shell-company network, A7 developed an automated system to falsify invoices and receipts, altering descriptions of the products being purchased and their identification codes. In this way, components used to build drones — such as optical transceivers or motors for unmanned aerial vehicles — appeared on paper as innocuous goods: from LED lights to barber chairs.

Crypto, another route to evade sanctions

Cryptocurrencies became another major tool for A7 to circumvent Western sanctions. On September 4 of last year, Ilan Shor boasted in a videoconference with Vladimir Putin about his company’s figures: “In 10 months we have processed between 1,500 and 2,000 transactions daily. The plan for 2025 is to pay 20 billion rubles [about €210 million] in taxes." Shor was joined by the owner of Russian bank PSB, Piotr Fradkov, the other key pillar in this Kremlin structure to evade restrictions.

Independent Russian outlet Proekt revealed further details in April after accessing several company documents. The scheme works as follows: a Russian buyer wants to pay for an item bought abroad and sends rubles to A7 in Kyrgyzstan via PSB, which provides infrastructure and loans. The Central Asian country’s legislation is permissive toward cryptocurrency transactions, allowing the Russian origin of the funds to be concealed. Once the money arrives in Kyrgyzstan, intermediary companies buy cryptos via the Grinex exchange platform, affiliated with A7.

Intermediary companies associated with A7 in third countries — especially in the Middle East and Southeast Asia — convert the cryptocurrency received into local currencies and pay the seller. The seller abroad then ships the goods to Russia. The Federal Security Service (FSB) is aware of this scheme but looks the other way because the elite benefit from it to import luxury items. To sustain the crypto business, A7 has also set up dozens of front operations in other countries. “The best way to evade sanctions and launder money is to create a company in a regulated country, hire respectable people and pay taxes,” a sector source stresses.

To move funds and pay for goods, however, the money must preserve its value. Traditional cryptocurrencies are highly volatile: one day they might be worth 100, the next day half that. For that reason A7 issued its own stablecoin (a crypto asset pegged to the value of a fiat currency such as the dollar or, in this case, the ruble) known as A7A5. Unlike the market-dominant stablecoins, it was designed specifically to evade controls and sanctions: unlike other assets, it cannot be frozen, making it harder for authorities to intervene when illicit activity is suspected.

European banks in Russia

A7’s network is not the only connection between Russia and the international financial system. Another loophole in Western sanctions has been the banks that were not cut off from SWIFT so gas and oil exports could keep flowing. Until the end of 2024, after two and a half years of conflict, the state-owned Gazprombank was not sanctioned, and a couple of European banks still operate in Russia.

Austria’s Raiffeisen Bank made headlines again last week after a short-selling research firm, Grizzly Research, called it a “key channel” for sanctions evasion, estimating more than $1 billion in commercial transactions flow through its accounts, some involving military material. “We support the robustness of our compliance systems, which have been reviewed on numerous occasions,” the bank responded.

The other institution under suspicion is Italy’s UniCredit. In May it announced the sale of its Russian subsidiary to an investor from the United Arab Emirates. However, the deal will close next year and the Italian bank will keep a division that “will focus on international payments in euros and dollars for Western corporate clients and non-sanctioned Russian clients.”

The system to route transactions from Europe to these banks is simple. In Raiffeisen Bank’s case, it receives transfers through an intermediary entity in Austria and forwards them to the account in Russia, with fees that can approach 15% of the transaction. Once in Russia, the Kremlin’s banking restrictions prevent withdrawing dollars and euros, and these currencies must be converted into rubles at an exchange rate about 10% worse than the central bank’s official rate.

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