US watches Russian crypto activity ahead of election

Hello and welcome to the latest edition of the FT’s Cryptofinance newsletter. This week we’re taking a look at Russian disinformation campaigns and crypto.

Crypto and Russian disinformation came sharply back into focus this week when the US government imposed sanctions on two Russian nationals and their companies.

Ilya Gambashidze, founder of Social Design Agency, and Nikolai Tupikin, chief executive and owner of Company Group Structura, were involved in a “malign influence campaign” at the direction of the Russian presidential administration, the Treasury department said on Wednesday.

Authorities alleged the two men implemented a network of more than 60 websites that published staged videos and were designed to impersonate legitimate news websites. The content from these websites was then amplified through fake social media accounts.

But what was also notable was the US’s decision to impose sanctions on two Tether wallet addresses they claim were linked to the men.

Using the addresses, blockchain analysis company Chainalysis estimates Gambashidze’s wallets received more than $200,000 worth of tether tokens on the TRON network, a blockchain with a reputation for cheap transaction fees. Tether has frozen the wallets that are under sanctions.

The US’s latest round of sanctions raises the stakes for lawmakers to find an answer to crypto-financed influence campaigns that sticks, as the country readies itself for November’s presidential election.

“We know Russian actors used crypto to support election interference activities [in the past], and so it wouldn’t be surprising if they do so again,” Andrew Fierman, head of sanctions strategy at Chainalysis told me. “With this action, the US government is sending a signal that they’re on high alert, especially in an election year,” Fierman added.

Brian Nelson, under-secretary of the Treasury for terrorism and financial intelligence, said the US was “committed to exposing Russia’s extensive campaigns of government-directed deception, which are intended to mislead voters and undermine trust in democratic institutions in the United States and around the world”.

Sanctions are deterrents but ultimately, if someone is determined to skirt around them, they’ll try to find a way. And of course Russia has long been accused of running disinformation campaigns abroad.

A recent report published by the Royal United Services Institute said influence operations were “core components” of Russia’s unconventional warfare concepts. Last year the EU also imposed sanctions on Gambashidze after he targeted voters in European countries, including France, Italy and Germany.

The latest penalties are also not the first time Russia has been linked to the crypto sector.

In April 2021, US sanctions body Ofac put 16 groups and 16 individuals on its list, accusing them of meddling in the 2020 US presidential election. Several of these entities used cryptocurrencies to finance their operations, including SouthFront, a Russian intelligence-linked firm that received more than $12,000 in bitcoin and other tokens.

Going back even further, US authorities alleged in 2020 that Russian national Artem Lifshits managed an operation named Project Lakhta designed to sow distrust in the US political system. Lifshits financed his operations using crypto accounts linked to victims of identity theft located in the US, the justice department said.

“The US sanction regime is not perfect,” Jo Ritcey-Donohue, founder at JRD Law, a US law firm, told me. “When it comes to crypto, US authorities are playing whack a mole.”

Ritcey-Donohue’s assessment rings especially true when you consider that — according to Chainalysis — the majority of USDT funds linked to Gambashidze’s wallets flowed through Garantex, a Russian crypto exchange the US already tried to clamp down on with sanctions two years ago.

“Policymakers always reflectively suggest we should use economic sanctions. But we’re at a point where we use sanctions so much to tackle these national security challenges that we’re not as focused as we should be on expectations and outcomes,” one former Ofac official told me.

“Are we really impacting their behaviour?” the former Ofac official added.

What’s your take on crypto’s role in disinformation campaigns? As always, email me at scott.chipolina@ft.com.

Weekly highlights

Binance executives Tigran Gambaryan and Nadeem Anjarwalla are still being detained in Nigeria. An Abuja court is now due to resume a hearing into their future on April 5. Neither individual has been charged with a crime to date.
Another week, another big bitcoin move: the flagship cryptocurrency fell 16 per cent from its recent all-time high, trading as low as $60,760 earlier this week. The sharp pullback comes as the 11 newly approved bitcoin spot ETFs register roughly $850mn in outflows this week.
Genesis Global Capital LLC agreed to pay a $21mn civil penalty to settle charges that it engaged in the unregistered offer and sale of securities through its Gemini Earn program, the SEC announced on Tuesday. The regulator also said the settlement made it clear that “crypto lending platforms and other intermediaries need to comply with our time-tested securities laws”.

Soundbite of the week: Ineffective altruism

Sam Bankman-Fried will be sentenced next week and his lawyers are pushing for a lenient sentence on the grounds that customers will be paid back. His successor as chief executive of FTX, John Ray, was having none of it.

Bankman-Fried continues to “live a life of delusion”, he wrote to the judge, Lewis Kaplan. He added:

“Harm to customers, lenders, and investors is zero” was “categorically, callously, and demonstrably false”.

Data Mining: Solana splits with the crowd

Bitcoin isn’t the only cryptocurrency that has fallen sharply this week.

The “alt-coins” — crypto speak for tokens that aren’t bitcoin — have had a bad week, too. Ether, the second most popular cryptocurrency, is down 8 per cent in the past week. Rival coins dogecoin and cardano are down 4 per cent and 12 per cent respectively.

But solana has broken from the crowd, rising to $209 earlier this week, the highest it has been since December 2021. Trading volume on centralised exchanges has exploded in recent weeks for the coin, too.

One reason for the surge is that decentralised finance projects are using the Solana network more than they use a rival blockchain, Ethereum, in part because of Solana’s cheaper fees.

There’s also something to be said about solana’s post-FTX recovery. The token — a Sam Bankman-Fried favourite — plummeted to a low of $13 days in the immediate aftermath of FTX’s collapse.

“This association may have led to solana being oversold,” said Jacob Joseph, researcher at CCData.