Sun | Feb 17, 2019

Russian bank helps Venezuela defy US cryptocurrency sanctions

Published:Tuesday | May 15, 2018 | 11:04 PM
In this April 24, 2018 photo, the Evrofinance Mosnarbank building stands in Moscow, Russia. The little-known Moscow bank has emerged as the only international financial institution so far willing to defy a US campaign to derail Venezuela's state-backed digital currency, called the petro, even before it begins to function.

Investors looking to buy Venezuela's new cryptocurrency may want to head to a little-known Moscow bank whose biggest shareholders are President Nicolas Maduro's government and two state-controlled Russian companies under United States sanctions.

Evrofinance Mosnarbank has emerged as the only international financial institution so far willing to defy a US campaign to derail the world's first state-backed digital currency, called the petro, even before it begins to function.

Early would-be investors who registered with Venezuela's govern-ment and downloaded the petro's wallet software - available in Spanish, English and Russian - were then invited to buy the cryptocurrency by wiring a minimum of €1,000 to a Venezuelan government account at Evrofinance.

The bank's place in the rollout of the petro is further evidence of Russia's role in the creation of a cryptocurrency that much of the digital world has shunned but that Maduro hopes will allow Venezuela to circumvent US financial sanctions imposed last year.

Russia has provided Venezuela with billions in debt relief over the years and is a major investor in the country's oil industry.

At the petro's launch on February 21, Maduro heaped praise on two Russians in the audience who worked with wealthy, Kremlin-connected businessmen, thanking their previously unknown start-ups - Zeus Exchange and Aerotrading - for their role developing what he joked would be a kind of 'kryptonite' against US economic dominance.

A day later, he dispatched his economy minister to Moscow to brief his Russian finance counterpart.

And in March, the Russian Association of Cryptocurrency and Blockchain awarded the Venezuelan government an award for its role "challenging the de-facto powers of the international financial system."

Evrofinance and its executives didn't return repeated email requests for comment. But after The Associated Press' inquiries, all references to the bank were removed from the petro's wallet, leaving prospective buyers with no guidance on how to actually buy it, though it's still listed for sale in roubles and euros as well as three other widely circulated cryptocurrencies.

Venezuela's government purchased a 49 per cent stake in Evrofinance in 2011, making the bank, which traces its history back a century as a western financial outpost for the Soviet Union, a vehicle for binational trade and investment projects, with almost US$800 million in assets.

The rest of the shares are held by two major banks, state-controlled VTB and Gazprombank, which were sanctioned by the US and European nations in 2014 over President Vladimir Putin's annexation of Crimea.

It's unclear how many petros the government has sold. Maduro boasted this month that the government had raised US$3.3 billion in the pre-sale phase. But so far only a small fraction of the petros appears to have been distributed to buyers, according to the blockchain where the digital currency's movements can be publicly tracked.


Experts say that the petro is of little interest to foreigners other than drug traffickers and others active in Venezuela's burgeoning criminal underworld. Even offshore trading platforms like Bitfinex are refusing to deal in the petro for fear of violating sanctions. Rating website, which tracks initial coin offerings of cryptocurrencies, called it a "scam".

"An overwhelming majority of ICOs don't deliver on what they promise because their promoters are outright scammers or fall short on technical expertise," said Alejandro Machado, a Venezuelan-born computer scientist who consults for crypto start-ups. "In the case of the Venezuelan government, both reasons apply."

One of the two Russians who signed agreements with Maduro to position the petro globally, Denis Druzhkov, had been fined US$31,000 and barred for three years by the Chicago Mercantile Exchange for fraudulent trading in futures' contracts.

Zeus Exchange, which Druzhkov created alongside a Kremlin-connected industrialist, said in a statement that it has never had any business ties with the Venezuelan government and that Druzhkov resigned after abusing his authority.

The other, Fedor Bogorodskiy, used to help run the credit card division at a bank controlled by a Russian oligarch. He has lived in Uruguay since 2009, combining telecommunications business with part-time promotion of Russian culture. He told The AP that his company, Aerotrading, whose website consists of a single home page with no company information, immediately ceased all work on the petro after Trump announced his ban.

Despite the pressure, Maduro is showing no signs of slowing down. He's given government institutions - from ministries to airports - 120 days to start accepting the petro as legal tender in all transactions.

Maduro also paved the way for the creation of 16 local exchanges where Venezuelans will be able to purchase petros with their fast-depreciating bolivars. And a second state-backed cryptocurrency tied to the country's gold reserves is in the works.