To support the conflict with Russia, thousands of pieces of state-of-the-art military equipment, unprecedented media support, and billions of dollars – to maintain financial stability – have poured into Ukraine from the West.
The multimillion-dollar cryptocurrency donations which Ukraine has been collecting “for the needs of its army” since February, seem to have disappeared from public view. So how has Kiev disposed of more than $100 million in crypto collected from around the world?
Every little BTC helps
Two days after the start of Russia's military operation, Ukraine's Deputy Prime Minister and Minister of Digital Transformation Mikhail Fedorov announced cryptocurrency fundraising to support the country. Kiev accepted almost all major denominations: Bitcoin, Ethereum, Tether, a number of lesser-known types, and even NFTs.
At the time, the decision to accept crypto, to “help Ukrainian fighters”, appeared innocuous. The Russian offensive was rapid and it seemed as though Western aid, although large-scale, would not arrive in time.
Cryptocurrencies are an ideal tool in this respect: With a few clicks you can transfer millions of dollars to almost any country in the world, theoretically bypassing banking supervision or the attention of law enforcement. Ukrainian officials clearly expected to attract money not only from the governments of the United States and the European Union but also from concerned citizens familiar crypto. And they succeeded.
Just a week after fundraising began, on March 3, Deputy Minister Alexander Bornyakov announced that Kiev had raised $53 million. A week later, this figure doubled – the country had received a round sum of $100 million from all over the world. It seemed that a local crypto-paradise had formed in Ukraine and, once this money was put into circulation, the country would be able to successfully resist Russia. However, the reality turned out to be much more complex.
First, the flow of cryptocurrencies drastically weakened. In early June, the same Fedorov reported that “for more than three months, the total amount of donations in crypto assets exceeded $100 million.” After June, he no longer published messages about the value of new contributions.
The money that Kiev managed to collect for confrontation with Russia should have been spent as efficiently as possible. And here the "fun" begins.
Unnecessary crypto
Western propaganda carefully, and falsely, shapes the image of Ukraine as a democratic and open country, whose authorities are accountable to their citizens. In reality, however, Ukrainian officials do not provide any detailed and reliable reports on spending. And the case of the millions collected globally in cryptocurrency is no exception.
In total, since collection began in February, the Ministry of Digital Transformation has reported twice on spending – on April 14 and July 7, on a total amount of almost $100 million. Information about the July report appeared only on August 17, when it was posted on Twitter and published by Fedorov.
The publication delay of over a month is in itself suspicious, but the oddities do not end there.
According to the specialized crypto media CoinDesk, Ukraine had received $135 million in cryptocurrencies by June. Given the large-scale support from the West, the actual volume of receipts in cryptocurrencies by September presumably should have grown even more.
Having collected impressive sums, Ukrainian officials, for reasons only known to themselves, are in no hurry to spend the money on the needs of their army. After seven months of active hostilities, Ukraine reported spending only about 75% of the crypto funds collected, and this is taking into account only those amounts that are reliably known. What happened to the remaining funds, and why Ukrainian officials seem to be indifferent to tens of millions of dollars, cannot be unambiguously explained.
Army Needs
Questions also arise over what exactly Ukraine, as officials claimed, spent the collected crypto on. For example, according to a July report, 213 drones were purchased for $11.8 million. Settling on an average cost of goods is the conventional approach, but it turns out that one drone bought for crypto cost nearly $55,800. An extremely impressive amount, despite there being simply no such equipment in the public domain.
For example, the DJI Mavic 3 drone, which has become popular in the conflict, costs between $2,000 and $5,000 depending on modifications. It can be used for reconnaissance and for dropping grenades on the enemy and it is the most common civilian drone. UAVs, on the other hand, with an average cost of $55,000, are more likely to be military grade with secure communication channels. And such UAVs obviously cannot be bought for crypto – they are officially purchased as part of defense contracts.
Another feature of Ukrainian purchases for cryptocurrencies is extremely vague reporting on purchases. With public fundraising, it’s an established norm that the ‘collector’ publish how much money was spent on which model of what particular equipment, with photographic confirmation. However, in the case of the Kiev government, such reports are de facto absent.
For example, on May 4, it was announced that 31 thermal imaging sights had been handed over to Ukrainian border guards. In total, as reported, they received more than 5,000 optical and thermal imaging sights, bought from crypto. At the same time, published confirmation of the transfer of these items amounted to a single photo of one unspecified unit, taken in an unknown location.
Of course, this in itself is not proof that Ukraine has permitted the misappropriation of the collected crypto and falsified information about purchases. However, no confirmation has been published that the equipment was transferred to troops.
All Ukrainian reports on the spending of the collected crypto look literally like a web-page, on which the distribution of funds is randomly indicated. It is impossible to verify and, in fact, officials are asking us to simply take their word for it.
It is also interesting that the Kiev authorities claim that tens of millions of dollars were spent on the army's needs, but the government Twitter account which supplies spending reports, offers no information about purchases worth such an amount. All expenses publicly reported there do not exceed a few hundred thousand dollars.
Tangled footprints
An analysis of transactions further suggests that Ukrainian officials arbitrarily disposed of the donations collected from around the world.
A feature of cryptocurrency is that it’s quite easy to create a wallet to store digital currency and there's no need to worry about banking or tax controls. Bitcoin and others are considered to be completely anonymous. In fact, a bitcoin address itself is just a set of Latin letters and numbers that have no connection to a specific person. However, it is still possible to track bitcoin operations.
It's all based on blockchain technology, where all transactions are recorded. This means that anyone can find out when and how much cryptocurrency was transferred from wallet X to wallet Y. Anyone can track such transactions thanks to publicly available and free services such as Blockchain.com or Etherscan.
Thanks to this, it was possible to establish that more than half of the bitcoin withdrawn from the Ukrainian government wallet were transferred to 3CcF942kYVRotGrfYQxD4QNn4aKVywpRxb. This wallet was created in 2018 and since then its turnover of funds has amounted to more than $6 billion. Interestingly, according to the Check Bitcoin Address profile service, this bitcoin wallet has been repeatedly used to receive money from fraud and blackmail.
Furthermore, it may have been used by cybercriminals to launder money and cover their tracks. In the crypto sphere, this is called bitcoin mixing – when “dirty” bitcoins that are involved in crime are mixed with “clean” cryptocurrency.
Hundreds of operations are carried out and, as a result, it becomes impossible to trace where the ill-gotten money went. An example of this kind of bitcoin mixer is Tornado Cash, against which the US Treasury has imposed sanctions. One of its founders has been arrested in the Netherlands.
Ukrainian officials could have used the mixer simply to ensure greater anonymity of military equipment dealers. However, the openly criminal background and the lack of full-fledged reporting cast doubt on the proper use of the service
Another suspicious bitcoin wallet is bc1qu4qcqp5xthrreedgk4s28kkqddpv4my53zx3uw. Created immediately after the start of active hostilities, it received $8.3 million from the Ukrainian government wallet. It has been used mainly to receive funds from the government crypto wallet and the criminal wallet mentioned above. According to Blockchain.com, the money was moved between them in small chunks, possibly to make it harder to track transactions.
The crypto wallets created immediately after the start of Russia's military operation are generally typical for Ukraine. An example, this time using the second most popular cryptocurrency in the world, ETH, would be 0x88ef7bf4e94d9c6a4615e5a9f32ea2d2f141f2e9. In total, 5260 ETH was withdrawn out of almost 10,000 ETH collected by Ukraine. And, interestingly, most of it was withdrawn three days after the publication of the April spending report. Prior to this, no funds had been withdrawn from the wallet for two months.
According to Ukrainian officials, transactions using crypto are quite normal for many equipment dealers. For long term operators, it is natural to use their usual wallet, no matter its history. But here we see that more than half of the amount in the two most popular cryptocurrencies was withdrawn either to newly created one-day wallets, or those with a criminal mix.
In addition, as mentioned earlier the Ukrainian authorities do not provide detailed reports on spending and it is impossible to verify exactly how the crypto transferred to one-day wallets was used. All this creates the impression that people in Kiev, contrary to all their talk about accountability and transparency, arbitrarily disposed of tens of millions of funds collected in this manner.