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.
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.