A report by TRM Labs highlights that Russian entities are using Kyrgyzstan's burgeoning cryptocurrency industry to bypass international sanctions. The research indicates that nearly all of Kyrgyzstan's crypto activities are linked to Russia, a sharp contrast to the pre-2022 situation, when the sector was nearly non-existent. Notably, Kyrgyz platforms have connections to the shutdown Russian exchange Garantex, which was known for significant transaction volumes. The report reveals similarity in registrations among Kyrgyz crypto firms, suggesting they may function as shell companies. Kyrgyzstan's crypto industry growth has been driven primarily by Russian demand rather than local usage. Although Kyrgyzstan's government embraced crypto legally in early 2022, there is little local retail interest. The report also outlines potential vulnerabilities within Kyrgyzstan's political landscape that could facilitate illicit financial activities, stressing the need for better regulatory safeguards to prevent abuse by sanctioned entities. Current efforts include developing a USD-pegged stablecoin in Kyrgyzstan, which may further entrench its role in facilitating Russian financial operations.

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