How Russia can beat EU sanctions – POLITICO

Europe has deployed an unprecedented arsenal of economic sanctions against Moscow in an attempt to weaken the Russian economy and force Vladimir Putin to abandon his war in Ukraine.

But as export bans bite in the coming months, Russia will begin to crave banned products that are essential to its military and national economy. The Kremlin will also want to replenish its war chest with revenue from sales of sanctioned products – from coal and oil to caviar – to willing buyers abroad.

This means that sooner or later Moscow will break the sanctions.

« In my country, we believe that everything should be tight so that there is no possibility of smuggling anything, » said a senior EU diplomat. « But…we are realistic and we know that if there are sanctions, then there are always people around who want to get around them…It’s not possible to fix everything absolutely. »

What will Russia want?

Since Russia annexed Crimea in 2014, prompting a first wave of sanctions, Moscow has tried to strengthen its self-sufficiency, but this has not been possible in all areas. It is easier to make your own cheese than to make your own electronic chips, for example.

That means Russia will need Western-made technology and machinery as sanctions affect supplies. These items are vital for military and civilian use, as well as maintaining oil and gas exports to countries like India where they are not banned.

« Russia desperately needs chips, semiconductor components and several essential raw materials such as lithium, to continue manufacturing weapon systems and electric batteries needed for military use, » said a former Ukrainian. said a trade official. « Without these sophisticated supplies, Russia’s military industry will effectively be crippled. »

Russia depends on Western inputs for oil and gas infrastructure, which makes a recent ban on exports of liquefied natural gas (LNG) equipment particularly problematic for Moscow. « The dependency is very high, » said Maria Shagina, who is a researcher at the International Institute for Strategic Studies.

Where will Russia get it?

Moscow is likely to try to import restricted goods through new trade routes, using torturous methods to avoid or escape Western scrutiny. The list of countries seen as potential weak spots for sanctions enforcement and compliance is varied, and Putin will find willing partners deep within Europe and beyond.

« Historically, there are a few jurisdictions that have proven to be on the front lines » of sanctions evasion, a former senior US Treasury sanctions official said. « Turkey and the United Arab Emirates are quite important in this respect. »

Turkey, which enjoys privileged access to the EU market through the customs union, is not aligned with EU sanctions like Switzerland and Norway.

Then there are Russia’s neighbors in the Eurasian Economic Union – which includes Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan. Former Western intelligence officials have told POLITICO there could be an increase in regular trade in the region, which Kazakhstan publicly encourages. But an increase in normal trade could also be accompanied by flows of sanctioned illicit goods.

“Here in Kyrgyzstan, Russians working in the IT sector have arrived in large numbers. But [I learned after] hanging out in bars in Bishkek that they’re not all here for political reasons. Some have ‘fleed’ with the blessing of their employer to circumvent the sanctions, » said associate professor Kevin Limonier at the French Institute of Geopolitics. tweeted.

Shagina thinks that « Kazakhstan cares about its international reputation » because it still wants to attract companies from China and the West, but « if a company in Kyrgyzstan doesn’t care » about cutting itself off from the American market via secondary sanctions, it could enter the lucrative business of sanction avoidance.

Weak links in Europe

Moscow could also seek the easiest export controls in the EU. This is because within the bloc, each country has its own national customs and penalties, so some jurisdictions are more flexible than others.

As an example, Shagina cited Italy, where there were « many cases » of banned goods almost being shipped to Russia after the 2014 sanctions. Ships « with links to Germany, Italy , Greece and Bulgaria » also docked at sanctioned ports in Crimea, she said.

And EU countries have not always been so strict in avoiding sanctions. For example, after Siemens shipped gas turbines to Russia in 2015 and 2016 that ended up in Crimea, prosecutors reportedly investigated some Siemens employees, but there has been no public report of the findings. ‘investigation.

“We have so far heard nothing about the legal consequences of this [Siemens] violation, » said EU lawmaker Anna Fotyga, who is a former foreign minister of Poland. « On the contrary, Siemens has kept the shares of the company responsible for the installation unchanged for years… been possible because they totally converged [with] Berlin’s Russian policy. » She added that the Commission had been « very mild in its assessment of this matter. »

A Siemens spokesperson responded by saying that « as a company we are not considered defendants and we never have been », adding that « the proceedings…involve individuals (in part of former employees) », and the company supports the sanctions.

Smugglers on the seas

In addition to cutting off the supply of much-needed foreign equipment, the sanctions aim to reduce the European market for Russian exports. Moscow will need to continue exporting raw materials such as oil, coal, minerals and grain to fuel its wartime economy and fund its invasion of Ukraine. Experts warn that Putin could find clever ways to continue selling gasoline or other sanctioned products like coal to the block.

EU countries agreed on June 3 to block Russian oil shipments to the EU by the end of this year, meaning time is running out for Russia to revamp its oil exports.

A common trick is to use ship-to-ship transfers, where, for example, a Russian ship in international waters unloads oil onto a second tanker, which then docks at an EU port and tags the oil as coming from a country that is not under sanctions. Another ruse involves the ships turning off their location trackers to hide their activities. There has been a sharp increase in this practice, which is legal, by Russian tankers since the invasion of Ukraine.

And while scientists can, in principle, determine where the oil came from based on geochemical analysis, « if you’re mixing things up and hiding where it came from, there’s definitely a problem of plausible deniability. » , the former top sanctions official said. « Kazakhstan oil and Russian oil are quite similar, unsurprisingly. »

Historically, EU sanctions enforcement has been much weaker than in the US, but in March the European Commission launched an online whistleblower portal to encourage people to report alleged violations.

Crime and Punishment

The bloc has also drawn up plans to make it a crime to fail to comply with sanctions against Russia, to make it easier for EU governments to seize the assets of companies and individuals who circumvent the rules. A new initiative is also underway to coordinate customs regimes across the bloc, dubbed « Operation Oscar ». The aim is to unite the work of Europol, Frontex and Eurojust, but ultimately its success will depend on the efforts of law enforcement authorities in each country.

Experts point to non-EU Hungary, Bulgaria and the Balkans – including Russia-friendly Serbia – as potential enforcement weak links.

POLITICO contacted the customs authorities of France, Poland, Austria, Belgium, Malta and Bulgaria. None responded to our questions, with the exception of Bulgarian customs, which stated that « there are currently no frequent attempts to avoid sanctions » and « the Bulgarian customs administration strictly enforces sanctions as they are currently imposed ».

Despite renewed efforts to suppress the evasion, it is likely that complicit or complicit governments and corporations will continue to provide Putin with what he wants.

But even if Russia continues to import banned goods, Moscow will still have to pay to find suitable workarounds. Countries that facilitate trade flows from Russia « know how to do business », said Francesco Giumelli, a sanctions expert at the University of Groningen in the Netherlands. « They go the price. »

Doug Palmer and Lili Bayer contributed reporting.