How Russia Is Still Dodging Sanctions — With Help From Companies Everywhere
In Russian independent media site Vazhnye Istorii ("Important stories"), defense expert Eric Woods at the James Martin Center for Nonproliferation Studies explores how these schemes work.
Export law loopholes
It is important to distinguish between sanctions and export controls. People often think they are one and the same, and in terms of their functions this is true, but sanctions and export controls use different mechanisms to control goods. There are many overlapping rules, and these rules are written in such a way that even Americans themselves can't understand them.
Consumer electronics are not subject to export controls.
If I am a U.S. citizen who wants to export something to Russia, I need to check if the goods are under export control. All goods subject to export control are dual-use goods (i.e.they can be used for civilian and military purposes), but not all dual-use goods are under export control. Here is the first confusion.
Consumer electronics are not subject to export controls. But it all depends on the context and who the end user will be. If my grandmother ordered electronics, it would be legal, but if the buyer was a Russian military enterprise, it wouldn’t be.
We have many sanctions, but there is not enough understanding of how they work. The laws are so complex that it is difficult for customs officers at the airport or port to understand them all.
Smugglers take advantage of this. It is by no means difficult to circumvent sanctions.It's what your clients do
If the military or intelligence agencies want to get components that are under export control, they usually get them through intermediaries. It is often a difficult and laborious process, and it makes goods more expensive, but if customers have the time, energy and resources, they’ll do it.
American companies can easily say, "We don't ship to Russia, we don't ship to Iran, we don't ship to North Korea." And it's true, they don't. But their clients can, and often do.
The manufacturer wants to make money, not spend millions of dollars vetting every customer or business that walks in. When someone comes in and says, "Here's a million dollars, I need a product," you don't ask questions.
One American company, for example, sold computer equipment directly to a Russian company that makes launchers for the S-400 anti-aircraft missile system. The company’s compliance department told their bosses: "We can't do that; this is a rocket factory in Moscow." But they ignored the warning because the order was a big one.
The Washington Post reported another example in October last year of an American company making hypersonic missiles for the Pentagon. They sold the technology to one company in the U.S., that company to another, and now that technology is being used in Chinese weapons.
It is difficult to verify everything when there are so many intermediaries involved. But companies should and need to ask questions.
A well-rehearsed scheme
The scheme of using third countries to access goods under export control has been operating since the Soviet era. There are documents and studies from the 1970s and 1980s that the Soviet Union received a great deal of computer equipment and electronics from the United States.
Back in the days of Stalin, an international coordinating committee for export control was created, which was supposed to ensure that dual-use technologies did not get into the USSR. However, third countries such as Finland traded with both sides, undermining the goals of the committee.
Until last February 24, there were many cases when prohibited goods were imported, for example, through Finland or Estonia. Today, of course, they don’t cross the border — Estonia and Finland are now desperately trying to make their borders with Russia more secure. But instead, we see attempts in places like Taiwan and Hong Kong to do similar third-party deals with Russia.
Do sanctions work?
Many studies show that the Russian defense complex has been in total disorder since 2014. Sanctions work. There’s no doubt about it. The cases of circumvention of sanctions that we become aware of are the success stories of smugglers.
Of course, there are businesspeople who use sanctions as an opportunity and supply millions of dollars worth of military components to Russia. But are these supplies sufficient? We don't yet know for sure.
The United States would need the help of China, Malaysia, Indonesia and all countries that produce sanctioned components to combat sanctions violators. But it's almost impossible. Why would China want to help America fight Russia?
It would cost a vast amount of money to move the production of microchips to more loyal countries. It is more economically profitable to produce components in Malaysia, Indonesia, and other countries than on home turf. Only the most modern components are made in the U.S.
Secondary sanctions should be of concern to smaller countries doing business with Russia. If I were a Taiwanese company, I would be worried. Americans have a lot of money and they are willing to spend it in Taiwan. From an economic standpoint, it would be terrible to lose the American market. Mainland Chinese companies might be worried too, but it depends on who they consider their main customer.
A device on show to demonstrate the use of foreign components by Russian troops
Low-quality weapons
Missiles hit civilians when you use inaccurate weapons in populated areas. Missiles, especially those designed and built during the Cold War, are not as accurate as the military claims them to be, even though they have been upgraded under Putin. This may be due to inattention, lack of information about the target, for example, when using old Soviet maps, or due to political pressure to launch. We have seen this multiple times already during the war.
If Russia were to lose Western tech, they would be left with 1970s era weapons.
The Americans have a so-called combat damage assessment — when the military checks whether they hit what they wanted. Whether this occurs to the same extent in Russia remains to be seen, but if these reports are falsified, like others are, in order to tell authorities what they want to hear, this is very bad. In this sense, the human factor plays a greater role than electronics.
But even so, if Russia were to lose Western tech, they would be left with 1970s era weapons.
Will Russia replace Western tech?
Even in the time of the USSR, Russian microchips lagged far behind American tech and often copied the developments of the U.S. instead of creating their own chips. I can’t see Putin, especially now, being able to change that.
Even when the West began to impose sanctions back in 2014, it seems that Russian arms manufacturers did not replace foreign components in their weapons. Whilst a huge amount of money was allocated to the defense complex to solve this problem, the money simply disappeared.
As for the replacement of Western components with Chinese ones: many US chips are part of complex supply chains involving companies that have offices in China. They are already Chinese to some extent. Whether the Russian defense complex will be able to switch to solely Chinese-designed electronics is unclear.
Russia's capabilities for the production of microelectronics are decades behind even a country like Malaysia. The equipment needed to set up your own production is big, heavy, hard to hide and hard to smuggle in. Maybe Russia will be able to buy used equipment. Or maybe the Chinese semiconductor market will move forward. Whatever the case, Putin has had two decades to build the semiconductor industry — and his attempts were about as successful as his war.
