On Wednesday, The Block reported that the US Treasury had added bitcoin mining firm BitRiver to its sanctions list.
As of the latest reports, BitRiver is the largest provider of cryptocurrency mining hosting in Russia. The particular incentives for the sanctioning were, however, vague.
The move drew widespread attention as the first time the Treasury had gone after cryptocurrency mining. The Treasury’s own headline read: “Treasury takes new step of designating a virtual currency mining company.”
The Treasury has not said why it sanctioned BitRiver in particular and did not elaborate when contacted by The Block. However, BitRiver has ties to certain Russian companies — including firms founded by Russian Oligarch Oleg Deripaska — that have previously been targeted by American officials.
The sanctions
BitRiver runs data centers that host third-party crypto miners, rather than its own mining rigs. This is possibly why the sanctions on BitRiver and affiliated companies have not designated any cryptocurrency wallet addresses.
It was only in September that the Treasury targeted its first cryptocurrency exchange, a Russia-based OTC desk called Suex. Suex had received huge sums of money from Russian ransomware operators and other bad actors, which attracted attention as the Treasury spent 2021 fighting ransomware.
The sanctions on BitRiver, however, did not mention what was specifically objectionable about the company or its business relationship. The Treasury’s statement instead seemed more generally aimed at the industry’s ability to aid Russia’s economy:
“By operating vast server farms that sell virtual currency mining capacity internationally, these companies help Russia monetize its natural resources. Russia has a comparative advantage in crypto mining due to energy resources and a cold climate.“
In a statement to The Block, David Carlisle of crypto analytics firm Elliptic said that “OFAC’s sanctions action is a pre-emptive strike to prevent Russia from leveraging its energy resources for crypto-enabled sanctions evasion.”
The Treasury cited Executive Order 14024’s general push against Russia’s tech sector as legal justification for the move amid growing tensions between the two countries. That order was issued in April 2021 and was later expanded in a subsequent order after the outbreak of the war in Ukraine.
So is there no particular significance to the targeting of BitRiver?
For one, BitRiver is at least publicly the biggest such operator in Russia. Company information shared with The Block put total power at BitRiver’s facilities at 300 megawatts, double what it was last year. The firm counts 100,000 ASIC machines in operation at its five existing data centers, with another four under construction.
But as Runets said in a statement shared with The Block, BitRiver “has never provided services to Russian government institutions and has not worked with customers already targeted by Washington’s sanctions.” The Treasury has not publicly said otherwise.
Runets went on to allege that the sanctions were competitively motivated, saying: “Russia could rank second after the United States in terms of mining and other blockchain computation. The actions of the US Treasury are therefore dictated by competitive considerations in favor of US business.”
Oleg Deripaska
However, the firm maintains key ties to companies that have fallen afoul of US sanctions, specifically businesses tied to Oleg Deripaska, a Russian aluminum magnate.
The Treasury directly sanctioned Deripaska in April 2018, alongside his aluminum company Rusal and energy companies En+ and EuroSibEnergo. Deripaska remains sanctioned to this day, but he managed to appeal the sanctions on those three firms later that year by reducing his ownership share from 70% to 45%.
Some have alleged that that reduction in ownership did not include a reduction in Deripaska’s management. Bloomberg reported that this included European officials. But those firms themselves remain unsanctioned.
BitRiver operates out of multiple locations, but its main data center is in an old aluminum smelting plant in Bratsk, Irkutsk Oblast, perched along an inlet of the Angara River created by the massive Bratsk Hydroelectric Station, which is owned by EuroSibEnergo. That plant, the company reports, uses 100 megawatts of energy.
The main data center was, according to a 2019 Bloomberg report, originally an initiative by En+ and Rusal, which also own the facility that BitRiver rents.
In November 2020, En+ and BitRiver announced a partnership that would supply BitRiver with most of its energy needs. That partnership is under the name Bit+, a separate corporate entity.
In mid-April, BitRiver finished construction on another facility in Ust-Ilimsk, further north along the Angara River, with a power demand of 87.2 megawatts. That facility is located next to a hydroelectric dam that is owned by IrkutskEnergo, another subsidiary of En+.
“En+ is our critical partner, as is GazProm Neft,” a representative for BitRiver told The Block of the relationship between the firms. “Our company is private and independent.”
The representative said that the firm’s orders for machines are scheduled for almost a year going forward. Runets said: “BitRiver’s enterprises, production sites and offices in Russia are operating normally. Orders from international customers are consistently high.”
GazProm Neft is a subsidiary of Russia’s state-owned energy company, GazProm. The US has sanctioned GazProm Bureniya, the company’s drilling affiliate, and on February 22 designated both GazProm and GazProm Neft an agent of the government of Russia. EU sanctions put in place in March have cut off investment in GazProm Neft.
OFAC did not return a request for comment.
Runets’ network of firms
According to Russian and Swiss corporate registration documents reviewed by The Block, the Stanford-educated Runets operates a network of other firms formally based in an office in the Marina Roshcha neighborhood of northern Moscow. The new sanctions have not personally designated him, nor have they taken aim at any of these other companies he operates.
In addition to BitRiver’s holding company, which since 2021 has been registered in Zug, Switzerland, and the series of Russia-registered affiliates the Treasury has also designated, Runets operates a group of companies called FOX.
Registered in Runets’ native Yekaterinburg since 2010, FOX advertises six separate operations, the oldest of which is Fox Laboratories.
The group of companies expanded rapidly in 2017, including the launch of BitRiver, StroyServic+, and EnergyCompany Faraday and, in 2018, Bit+.
Though formed in partnership with En+, Igor Runets maintains sole corporate control over Bit+, per the company’s registration.
© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
