Source: Chainalysis; Translated by: Tao Zhu, Golden Finance
On August 23, 2024, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced further sanctions against nearly 400 entities as part of a multilateral effort to weaken Russia’s military supply chain and procurement networks. Among the entities sanctioned today is KB Vostok OOO, a Russian unmanned aerial vehicle (UAV) developer known for designing drones used by the Russian military in Ukraine. KB Vostok not only solicited cryptocurrency donations on its website, but also may have promoted the sale of drones through cryptocurrency.
Who is KB Vostok?
The company, also known as the Vostok Design Bureau, is responsible for designing drones deployed by the Russian military, according to a Treasury Department news release.
The press release describes Vostok Design Bureau’s Scalpel drone as a “one-way attack platform that can carry a payload of up to 5 kg.” In a September 2023 statement reported by Russian news agency TASS, the company noted that “we are in an ongoing dialogue with the military on the technical requirements for the aircraft.”
The screenshot shows promotional material used by Vostok to market these drones.
The Scalpel is simple to produce and affordable compared to similar drones, costing about 200,000 rubles, or about $2,200, each, according to Russian media reports. The emergence of more affordable drones is significant given the enormous sanctions pressure Russia faces (it has worked closely with Iran to procure and deploy deadly drones in Ukraine) and the general trend toward more sustainable and affordable drones in conflict zones.
Checking KB Vostok’s on-chain activity
OFAC’s designation includes a USDT wallet address used to solicit donations, which can also be seen in the screenshot of KB Vostok’s website below.
Analysis of wallet on-chain activity shows that KB Vostok’s cost-effective drones were likely purchased. In the Chainalysis Investigations chart below, we see transactions that likely represent the purchase of Scalpel.
Of the 18 USDT deposits received by the KB Vostok address on the OFAC Specially Designated Nationals (SDN) list, 16 were from the same counterparty. As shown in the chart above, the prices of these deposits were often close to or multiples of Scalpel's prices. This could indicate that the counterparty may be purchasing drones from KB Vostok.
Given KB Vostok’s direct material support for Russian military operations, and the volumes processed by the counterparty, the counterparty is likely a larger entity in the Russian military supply chain, likely a business rather than an individual user. Since January 12, 2023, the counterparty has processed nearly $40 million in transfers, often in the hundreds of thousands or millions of dollars at a time.
Additionally, the counterparty used multiple deposit addresses on the sanctioned Russian exchange Garantex. Cumulatively, these deposit addresses processed over $100 million in USDT, indicating that if the owner of this wallet has ties to Russia’s military supply chain, then they are extensively utilizing Garantex to facilitate that activity, as shown below.
OFAC’s designation of KB Vostok and its associated wallet addresses highlights the ongoing trend of the Russian war machine using cryptocurrency to fund military activities. Like other sanctions targeting Russian military operations involving cryptocurrency, this action highlights the critical role blockchain analysis plays in tracking and disrupting these efforts.
As cryptocurrencies become increasingly integrated into the global financial system, the U.S. government’s ongoing efforts to disrupt the financial facilitation networks of the Russian military-industrial complex, including through cryptocurrencies, confirms its commitment to undermining adversarial military capabilities and bolstering Ukraine’s defense.
