Ukraine has been losing billions of U.S. dollars in budget revenues as a result of crimes related to cryptocurrencies, a new report has indicated.
Proper crypto oversight can help the war-torn country’s government to recover some $10 billion or more, according to a quoted estimate.
Criminals take advantage of Ukraine’s crypto Wild East
From corrupt officials to ordinary criminals, and even the Russian military – many are exploiting Ukraine’s unregulated crypto market for their own benefit and purpose, reveals a study carried out by the U.K.’s leading defense and security think tank.
The findings in the report by the Royal United Services Institute (RUSI), focused on using public-private partnerships to address emerging threats in the crypto space, were quoted by the Kyiv Independent online newspaper, which insisted in an article on Friday:
“Regulation is needed to help law enforcement identify crooks faster, curtail money laundering, and leverage more than $200 million in tax revenue from crypto exchanges.”
The Eastern European nation, which boasts among the world’s highest crypto ownership rates, is yet to introduce a comprehensive framework for digital currencies, which will allow it to deal with this kind of crime that is costing its budget billions in lost revenues.
Ukraine made the first step toward establishing order in its crypto space in early 2022, right around the time Russia launched its full-scale invasion. The law “On Virtual Assets,” passed by the parliament in Kyiv back then, has not been enforced to this day, pending relevant amendments to the Tax Code.
Within Ukraine’s accession process with the European Union, its government is expected to implement a few dozen important reforms under a special assistance program, the Ukraine Facility Plan. One of these is aimed at aligning its VA legislation with EU rules.
This should be achieved by this year’s last quarter. However, two additional bills, incorporating the provisions of Europe’s Markets in Crypto Assets (MiCA) regulation into national law, are still under consideration.
OTC desks and money mules listed among Ukraine-specific crypto risks
Besides global crypto risks, the RUSI points to some specific risks to Ukraine, such as over-the-counter (OTC) activities in the country, the use of cryptocurrency to procure sanctioned items for the Russian army, and money mule practices.
Restrictions imposed by the National Bank of Ukraine (NBU) to prevent capital flight when the war broke out led to a surge in cryptocurrency usage, the RUSI noted.
“New opportunities emerged for illicit financial activities – most notably through money mules, commonly known in Ukraine as ‘drops’,” the independent think tank added.
These are cash-strapped citizens lending out their bank accounts to criminals to launder money for fees as little as $120, the Kyiv Independent explained.
Oksana Ihnatenko, managing director of the Center for Financial Integrity in Ukraine and one of the co-authors of the RUSI report, told the English-language publication:
“Some people don’t even know they are being used as ‘money mules,’ with criminals lying to them about what they want to use their accounts for.”
Crypto drops schemes are increasingly organized and decentralized, using social media and encrypted apps, analysts say. The RUSI emphasized:
“Expert estimates suggest that the Ukrainian state budget may be losing approximately UAH 1 billion (about $24 million) per month due to crypto-related drops operations.”
“Russian actors are actively exploiting OTC platforms as part of hybrid warfare efforts,” the British institute also alleged, claiming that social media channels, including the Telegram messenger, are being used to sell Ukrainian soldiers synthetic drugs for crypto.
The RUSI is convinced that improved oversight in this field would allow Ukraine to recover up to $10 billion for the national budget, while failure to adequately regulate OTC desks is likely to weaken Ukraine’s standing with its partners abroad.
