A report by TRM Labs reveals that Kyrgyzstan is becoming a hub for Russian entities to circumvent international sanctions through cryptocurrency. Before Russia's invasion of Ukraine in 2022, Kyrgyzstan's crypto sector was almost nonexistent, but it has since seen explosive growth driven by Russian demand. The report indicates that many Kyrgyz crypto platforms are linked to the shuttered Russian exchange Garantex, utilizing mechanisms such as the A7A5 stablecoin for illicit financial operations. The industry is now primarily composed of exchanges facilitating large-scale ruble-to-crypto transactions. Despite the rapid increase in transaction volumes, experts express concern over the lack of local adoption and the potential for exploitation within a political climate characterized by weak governance and corruption. Kyrgyzstan currently has over 126 licensed Virtual Asset Service Providers (VASPs), with ongoing developments such as a domestic USD-pegged stablecoin. The warnings highlight the need for stronger regulatory frameworks to control illicit flows.

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