- Copper Technologies transferred $4.2m in digital assets to Jonatan Zimenkov before he was sanctioned for alleged arms dealing ties.
- The transaction raises concerns about the adequacy of UK crypto regulations and the sector’s potential for offering anonymity.
- Despite no sanctions at the time, the incident highlights the need for stringent regulatory frameworks and due diligence in crypto transactions.
Copper Technologies, a leading cryptocurrency firm, transferred digital assets valued at over $4.2 million to a crypto wallet owned by Jonatan Zimenkov, a member of a network involved in arms dealing with alleged ties to Russia, who was subsequently sanctioned by the US. This transaction revealed through an investigation by the Guardian and the International Consortium of Investigative Journalists (ICIJ), raises concerns about the adequacy of UK crypto regulations to address the challenges of a rapidly changing sector known for its potential to offer high levels of anonymity.
The connection between Copper and Zimenkov, a 29-year-old Israeli-born Russian national, came into the spotlight after Zimenkov was sanctioned by the US in February 2023 for his purported role in aiding the Russian military’s activities in Ukraine through the “Zimenkov network,” led by his father, Igor Zimenkov. The funds were transferred to Zimenkov’s wallet in May 2021, a significant time before the sanctions were applied 19 months later. At the time of the transaction, Copper, which had appointed Philip Hammond, a former chancellor of the exchequer, as an adviser in October 2021, was operating out of London, although it has since relocated to Switzerland.
At the time Copper Technologies conducted a transaction involving over $4.2 million in digital assets to a wallet linked to Jonatan Zimenkov, there were no sanctions in place against him. However, the US Treasury’s Office of Foreign Assets Control (OFAC) later revealed that the Zimenkov network, implicated in activities including Russian cybersecurity, helicopter sales, and attempted arms deals to an African nation, had been active for years before sanctions were applied to 22 individuals and entities across various countries.
This incident highlights the complex and often opaque nature of cryptocurrency transactions, which can offer a degree of anonymity, sparking debate over the regulation of digital assets within the financial system. Copper maintains that it has complied fully with all legal and regulatory requirements, including sanctions laws in the UK, despite the transaction’s questionable optics.
The Guardian and the International Consortium of Investigative Journalists (ICIJ) note that Zimenkov was not a direct client of Copper, implying no regulatory duty on Copper’s part to verify his identity. It remains undisclosed whether Copper submitted a Suspicious Activity Report (SAR), a measure financial entities can take when transactions appear suspect, even if not outrightly breaching rules.
Recent updates in regulatory guidance and the adoption of the “travel rule” in late 2023, which mandates crypto firms to conduct due diligence on transactions with external parties, reflect growing regulatory awareness and concern over such risks. This comes in the backdrop of cryptocurrencies’ intrinsic features, where transactions are traceable via blockchain yet allow for potential anonymity since wallet addresses need not be directly linked to identities. Blockchain records indicate that in May 2021, Copper transferred substantial amounts of Ethereum to Zimenkov in two separate transactions, as per analytics from Etherscan, with the details of these transactions and their purpose remaining undisclosed.
The involvement of Copper Technologies in transferring over $4.2 million in digital assets to a crypto wallet linked to Jonatan Zimenkov, a figure entangled in an alleged Russian arms-dealing network, underscores the intricate challenges faced by the cryptocurrency sector in matters of regulatory compliance and the fight against illicit financial activities. The transactions, which took place in May 2021 and involved more than 1,700 units of ethereum, occurred well before Zimenkov and entities connected to him were sanctioned by the US Treasury in February 2023 for their role in a sanctions evasion network.
This network, which reportedly supported Russian defense exporters like Rosoboronexport and Rostec, already sanctioned entities, was accused of facilitating arms deals and contributing to Russia’s defense capabilities, including after the onset of the conflict in Ukraine. Despite the transfers being made before the imposition of sanctions, the case highlights the broader issue of anonymity in cryptocurrency transactions and the potential for their misuse in evading international sanctions and regulations.
While there’s no indication that Copper violated any existing laws or sanctions at the time of the transaction, the incident has brought to the fore the need for more stringent regulatory frameworks. The UK’s adoption of the travel rule in late 2023, requiring crypto firms to verify identities in transactions, marks a step toward addressing these challenges. However, the case also raises questions about the effectiveness of voluntary measures and the crypto industry’s responsibilities in preventing financial crimes.
Copper Technologies asserts its commitment to compliance with all legal and regulatory standards, including sanctions prohibitions in the UK, emphasizing the complexity of navigating the legal landscape for digital assets. The case also reflects on the broader implications for the crypto industry’s role in global finance, pushing for a balance between innovation and ensuring that digital currencies do not become conduits for illicit activities.
