President Donald Trump may not have realized on Monday that his executive order would step on Russia’s toes. Its official target was Venezuela, specifically the country’s plan to create the world’s first state-backed cryptocurrency, the petro, which went on sale Tuesday.
But behind the scenes, the petro was in fact a collaboration—a half-hidden joint venture between Venezuelan and Russian officials and businessmen, whose aim was to erode the power of U.S. sanctions, sources familiar with the effort told TIME.
Trump’s executive order did not mention the petro’s Russian backers, whose role has not previously been reported. Citing economic sanctions that the U.S. imposed against Venezuela in August, the order simply made clear that anyone who buys or uses the new cryptocurrency would be in breach of those sanctions, as would anyone under U.S. jurisdiction who helps Venezuela develop the petro. “Any conspiracy formed to violate any of the prohibitions set forth in this order is prohibited,” the document states.
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That may be why the Russians involved in this operation have been keen to remain in the shadows, in part through a clumsy online campaign to obscure their role in the project. But a TIME investigation has found Moscow’s fingerprints all over the creation of the petro, a scheme that reveals the range of Russia’s efforts to fight back against U.S. sanctions.
The new cryptocurrency, a form of digital cash that is supposedly linked to the value of Venezuela’s oil reserves, was launched on Feb. 20 during a ceremony in the presidential palace in Caracas. Nicolas Maduro, the socialist leader of Venezuela, declared that it would serve as a kind of “kryptonite” against the power of the U.S government, which he sarcastically referred to as “Superman.” Sitting in the front row at that ceremony were two of Maduro’s Russian advisers, Denis Druzhkov and Fyodor Bogorodsky, whom the President thanked for aiding his fight against American “imperialism.”
Both men have ties to major Russian banks and billionaires close to the Kremlin. But they were not the most senior Russians involved. According to an executive at a Russian state bank who deals with cryptocurrencies, senior advisers to the Kremlin have overseen the effort in Venezuela, and President Vladimir Putin signed off on it last year. “People close to Putin, they told him this is how to avoid the sanctions,” says the executive, who spoke to TIME on condition of anonymity. “This is how the whole thing started.”
The Kremlin did not respond to emailed questions about the petro, and the Finance Ministry in Moscow insisted in a statement to TIME that none of Russia’s financial authorities were involved in the petro’s creation. The Venezuelan government did not immediately respond to TIME’s requests for comment.
Rivaling the dollar?
Ever since 2014, when the U.S. and its allies used sanctions to punish Russia for invading parts of Ukraine, the Russian elites have been desperate to get those sanctions lifted and, in the long term, to weaken the West’s ability to impose them in the future. One of the core aims of these efforts, as Putin outlined in a policy paper on global trade that was published in September, is to “overcome the excessive dominance” of Western currencies, and especially the dollar.
Putin’s advisers have been more open about their ultimate aim: “The reign of the dollar must end,” Andrei Kostin, the head of state-controlled VTB, Russia’s second-largest bank, said in a speech last month in Moscow, calling on Russia to promote other currencies for use in international trade. “This whip that the Americans use in the form of the dollar would then, to a great extent, not have such a serious impact on the global financial system.”
While not as ambitious as the Russian attempt in 2016 to influence the U.S. presidential election, the Kremlin’s move into cryptocurrencies reveals another layer of ingenuity in its struggle against what Putin’s advisers have called the U.S. “hegemony” in global affairs. The use of cryptocurrencies could, at least in theory, hurt the U.S. ability to control the flow of money in and out of sanctioned countries, thus chipping away at one of most powerful means of U.S. influence around the world.
There are currently more than 1,500 cryptocurrencies in existence, with a combined value of more than $320 billion, according to CoinMarketCap.com, which tracks this market. By far the biggest of them is Bitcoin, which accounts for over 40% of their total value. But new cryptocurrencies can be created and sold without involving the banks and regulators that normally police currency markets. That is partly what makes them attractive to people under U.S. sanctions. By flying under the radar of big financial institutions, cryptocurrencies can help these people move their money around securely, discretely and with less fear of having it seized by U.S. authorities.
In the long term, if more people start using this type of digital cash, and more businesses accept it as a form of payment, trade in cryptocurrencies could ultimately grow large enough to rival major currencies like the dollar. That is what many investors in this field are banking on. “It’s an explosive technology,” German Gref, one of the Russian state bankers closest to Putin, recently said of the innovations that make cryptocurrency possible. “It will turn a lot of spheres upside down.”
U.S. regulators are not so sure. Three of the main architects of the Russia sanctions program, who spoke to TIME for this article, said cryptocurrencies will not save major Russian banks or institutions from its restrictions. “The Russians just love to poke holes wherever they can, and they poke a lot of holes, or they try to,” says one of them, Brian O’Toole, who worked at the U.S. Treasury Department between 2009 and 2017. But with cryptocurrencies, he says, “they can only nibble around the edges,” by allowing some sanctioned officials or businessmen to move their wealth abroad.
Still, U.S. authorities have been watching these efforts closely since last summer, when the Kremlin’s interest in cryptocurrencies intensified. In the words of one of Putin’s top economic advisers, Igor Shuvalov, the President “caught the fever” for this technology after discussing it in June with a range of experts and advisers. He has since endorsed its potential in a series of public pronouncements, and Russian officials, lawmakers and entrepreneurs have rushed to make Moscow a global center for the cryptocurrency market.
The Venezuelan experiment
One of their more ambitious ideas has been to create a digital version of the ruble that would mimic key elements of Bitcoin. The Russian Central Bank has, however, resisted this idea, because it would risk destabilizing Russia’s actual currency, says the executive at the Russian state bank. “For Russia, it’s too dangerous,” he says. “If we say that the only reason we do it is to avoid U.S. sanctions, then the United States is definitely going to be displeased about it.”
So instead of putting the ruble at risk, Russia encouraged its ally in Latin America to run the experiment on itself, the banker says. “Venezuela has nothing to lose. For them it’s the only chance.” Indeed, the value of the Venezuelan currency, the bolivar, has been decimated by official mismanagement and the impact of U.S. sanctions, which were imposed last year to punish Maduro for his deepening authoritarianism. The crisis has also made Maduro’s regime deeply dependent on Russia for loans and investments.
“So Russia made its stronghold here in Venezuela,” says Armando Armas, an opposition member of the nation’s parliament, the National Assembly, which has tried in vain to block the creation of the petro. “Now they are using Venezuela as a guinea pig for their experiment,” Armas tells TIME by phone from Caracas.
The job of arranging the details for this experiment has gone to the two Russian businessmen, Druzhkov and Bogorodsky, who met with Maduro on Feb. 20 to discuss the preparations. Toward the end of the hourlong launch ceremony of the petro that day, Bogorodsky stood to give a short speech in Russian, congratulating the “beloved leader” of Venezuela for the “very risky but timely move” he had made.
The Russian connection to this experiment became all the more clear the following day, Feb. 21, when Maduro sent his minister of finance, Simon Zerpa, to inform the Russian government about the results. Zerpa met that day in Moscow with Russian Finance Minister Anton Siluanov and other officials, and he posted photos of the meetings on Twitter. “We deliver to Min. Siluanov updated information about our cryptocurrency,” the Venezuelan minister wrote.
The Russian Finance Ministry was, by comparison, less eager to promote these discussions. There was no mention of them on the ministry’s official website or its social media accounts. (The ministry did, however, take the time to post on Facebook that day about a jewelry fair attended by one of its officials.) In its statement to TIME, the ministry insisted that the Venezuelan cryptocurrency was “not discussed during the meeting or any time later on,” nor did the ministers talk about “any cooperation in this regard.”
It remains to be seen whether Russia drew any lessons from Venezuela’s experiment. But in recent weeks the authorities in Moscow seem to have cooled on the idea of an official cryptoruble. Two days after the creation of the petro, one of Russia’s leading news agencies, Interfax, reported on a letter that Putin had received from Siluanov, his finance minister. The letter advised the President that, under some conditions, the government should allow the creation of a “private Russian cyptocurrency.” But it should avoid backing such projects with state money or resources, as the financial risks are still too high.
At least some of those risks derive from the reaction of the U.S. government, which has taken a hard line on cryptocurrencies under President Trump. “My No. 1 focus on cryptocurrencies, whether that be digital currencies or bitcoin or other things, is that we want to make sure that they’re not used for illicit activities,” Treasury Secretary Steven Mnuchin told CNBC in January. “So in the U.S., our regulations [state that] if you’re a bitcoin wallet, you’re subject to the same regulations as a bank.”
Under the radar
This position might help explain why Maduro’s Russian advisers have not always been keen to play up their involvement—or their connections to powerful business groups in Moscow.
After they met with Maduro on Feb. 20, state media in Venezuela identified these men only as representatives of a company called Aerotrading, which did not have a website at the time. When it appeared online the following day, the site provided no information about the company, apart from a banner that claimed it was “the biggest blockchain consultancy company,” referring to the technology that makes cryptocurrency possible. The company’s Twitter account, also registered on Feb. 21, contains only three posts. The last one reads: “We are pleased to welcome the #Petro cryptocurrency to the #blockchain ecosystem.”
Only after studying company records and speaking to other cryptocurrency investors was TIME able to identify the Russians whom Maduro had so warmly thanked for helping him create the petro.
Druzhkov, the younger of the two, appears to be relatively new to the world of cryptocurrency. He only founded his start-up in this field last fall, an online trading house called the Zeus Exchange. His partner in that venture, a wealthy Russian industrialist and art collector named Sergei Litvin, also seems to have no previous experience in cryptocurrency. But Litvin does sit on the executive board of a conglomerate that has been under U.S. sanctions since 2014. The conglomerate, Stroytransgaz, is controlled by one of Putin’s oldest friends, the billionaire oil trader Gennady Timchenko, who is also under U.S. sanctions.
Speaking to TIME by phone from Maastricht, in the Netherlands, where he was looking to expand his impressive collection of Renaissance art, Litvin said that Russia, like other countries, is watching the Venezuelan experiment closely. “We’re interested in how it will develop. We want to see the weak spots in such a project.” He insisted, however, that he and Druzhkov were only doing “technical analysis” of the petro, and were not involved in building it. Druzhkov, who posed for photos alongside Maduro during the petro’s official launch, declined numerous requests to speak with TIME about his role.
His other Russian partner in this project was more forthcoming. A former executive at several major Russian banks, Bogorodsky moved to Uruguay around 2009 and became an informal ambassador of Russian culture across Latin America. From there he has maintained close business ties with Russia and other former Soviet states, at times partnering with government agencies on tech and infrastructure projects, according to his personal website and local news reports. His involvement with the Venezuelan petro began in December, around the time when Maduro announced his plans for the petro, and when Putin ordered his government to analyze the benefits of a Russian cryptocurrency.
“Russia has been moving in this direction for a while now, trying to draft laws to regulate cryptocurrencies,” Bogorodsky tells TIME by phone from Montevideo, the Uruguayan capital. But this process has become bogged down in bureaucratic details, while Venezuela “wanted to move fast,” he says. “We were ready to help.”
His company, Aerotrading—the one whose barebones website appeared the day after the petro—has served as Venezuela’s “technical partner” on this project, Bogorodsky says. But it has not been involved in the official talks between the Russian and Venezuelan governments, such as the meeting on Feb. 21 between the two countries’ finance ministers: “We have nothing to do with that.”
Venezuela began the official sale of the petro to foreign investors on March 20, and Maduro hopes to raise as much as $6 billion—a massive sum for an economy on the edge of ruin. But it will be hard to verify how much Maduro actually earns, and how that money would be used. Experts have warned that a lot of it could go toward propping up his regime and enriching his allies.
As for the U.S. government’s attempts to ban these investments in Venezuela, Bogorodsky couldn’t care less. “Any citizen of the world can do what he wants,” he said, laughing down the line from Montevideo. “We offer freedom of choice. So I think there will be lots of investors, big and small, from all over the world.”