Russia’s Sanctions Evasion Report 2023 - 2024Focus: Central Asian Countries, Caucasus, and China

REPORT OVERVIEW AND CONCLUSIONS

Even though Central Asian and Caucasus gov­ern­ments promised inter­na­tion­al
com­mu­ni­ty to abide by the sanc­tions, a pletho­ra of small and large busi­ness­es in those
coun­tries owned by Russian oli­garchs offer aid to Russia to evade sanctions. 

Central Asian coun­tries con­tin­ue to serve as a tran­sit hub between devel­oped economies and
sanc­tioned Russia.

Obviously, like in the pre­vi­ous years it is hard to prove direct sanc­tion eva­sion cas­es due
to the secre­tive nature of con­tracts and deals between Russian and Central Asian
com­pa­nies. The cen­tral trade reg­istries either not time­ly updat­ed or con­tin­ue to pose
bureau­crat­ic obsta­cles to the pub­lic, mak­ing it hard for the lat­ter to prop­er­ly trace
move­ment of goods and ser­vices from the Central Asian coun­tries, Caucasus, and China
to Russia. We are left with only one valid ref­er­ence source — UN trade sta­tis­tics, which
unfor­tu­nate­ly and more so under­stand­ably, rep­re­sents data for the past year with a slight
delay.

The most exploit­ed routes for get­ting sanc­tioned prod­ucts to Russia are through
Kazakhstan, Kyrgyzstan, Uzbekistan, Georgia, and Armenia, all of which except
Kazakhstan con­sid­er­ably increased their exports to Russia in the past year. This is
obvi­ous­ly, not to claim that Kazakhstanis are com­plete­ly unin­volved in the sanction’s
cir­cum­ven­tion aid to Russia.

China became a new hub for cir­cum­vent­ing sanc­tions in 2023. China uses Central Asia
as an inter­me­di­ary chan­nel for get­ting prod­ucts and spare parts to Russia to enable it to
con­tin­ue atroc­i­ties in Ukraine. As sad as it can be major­i­ty of those parts are pur­chased
in the West. This is part­ly pos­si­ble due to their mem­ber­ship in the Eurasian Economic
Union (EAEU), a Russia-led coali­tion of trade part­ners. Members of EAEU coun­tries can
eas­i­ly engage in trade part­ner­ships with the out­er world while enjoy­ing free move­ment of
goods with­in the Union, cre­at­ing an oppor­tu­ni­ty for sanc­tioned prod­ucts to eas­i­ly enter
Russia.

Above all oth­er com­pli­ca­tions, Russia con­tin­ues to enjoy a sup­ply of the spare parts and
raw mate­ri­als which enable it to pro­duce weapons and muni­tions in quan­ti­ties suf­fi­cient
to con­tin­ue its aggres­sion against Ukraine. Shockingly, bil­lions dol­lars worth of microchips
for Russian mis­siles have been pur­chased from Western com­pa­nies and shipped through
Central Asia.

While Russia and Belarus were sanc­tioned heav­i­ly by the inter­na­tion­al sanc­tions, the
West has not applied com­pre­hen­sive sanc­tions to oth­er mem­bers of the Eurasian
Economic Union. This per­mits the flow of prod­ucts between Central Asia and neigh­bor­ing
coun­tries Georgia and Armenia. Sanctions have had an impact on the num­ber of exports
enter­ing Russia but simul­ta­ne­ous­ly cre­at­ed a sig­nif­i­cant increase of goods enter­ing the
Eurasian Economic Zone and Caucasus which still ben­e­fit­ed Russia as the end user of
the prod­uct supplies.

Instead of rush­ing to apply sec­ondary sanc­tions the Western coun­tries chose to improve diplo­mat­ic and eco­nom­ic rela­tions with the coun­tries that are deemed to help Russian sanc­tions eva­sion. No effec­tive sys­tem­at­ic tools for mon­i­tor­ing the sanc­tion eva­sion process have been devel­oped so far. The US and EU con­tin­ue to finan­cial­ly assist the coun­tries
allied with Russia and con­tin­ue the nego­ti­a­tion process with the pos­si­bil­i­ty of a future inte­gra­tion of Central Asia into Europe.

This past year we have noticed an increase in migra­tion of Central Asian busi­ness­es to
and out of Russia and a vice ver­sa. While we are still work­ing to under­stand the var­i­ous
schemes, busi­ness­es are try­ing to estab­lish to evade sanc­tions, we have an idea of the
struc­tur­al base formed to sup­port sanc­tion eva­sion process. The key sanc­tioned fig­ures
in Russia resign from their posts, buy busi­ness­es in Central Asia, and reg­is­ter the lat­ter
under their names. In oth­er words, they are chang­ing com­pa­nies’ own­er­ship and
juris­dic­tions to remain in busi­ness and sup­ply the Russian mil­i­tary indus­try with spare
parts and raw mate­ri­als required to pro­duce weapons and munitions.

Since the gov­ern­ments of these coun­tries have agreed to abide by the inter­na­tion­al
sanc­tions more data became avail­able on pri­vate com­pa­nies’ deals. However,
gov­ern­ments seem to turn a blind eye to the big­ger deals that is strate­gi­cal­ly impor­tant to
Russia and might fall with­in the inter­ests of the region­al polit­i­cal elite. 

At the end of the report, we site two respons­es by the gov­ern­ment agen­cies for our infor­ma­tion request.

A trend is notice­able that Russia and their allied coun­tries have start­ed active­ly using third
coun­tries that are not under thor­ough inter­na­tion­al scruti­ny like China or the Middle East.
More cas­es of pri­vate com­pa­nies were revealed that sup­ply the Russian mil­i­tary indus­try
with dual-pur­pose goods, spare parts, and raw mate­ri­als for weapons and muni­tion
(mis­siles, drones, gun­pow­der, etc.).

Sanctions that pre­dict­ed to have a longer-term effect have not yet start­ed work­ing. This
year, due to the tight­ened restric­tions and threat of sec­ondary sanc­tions, a few
busi­ness­es were caught and crim­i­nal cas­es against them were ini­ti­at­ed. This how­ev­er
has not stopped Russian phys­i­cal faces and enti­ties from cir­cum­vent­ing sanctions.

In addi­tion­al to geopo­lit­i­cal sur­vival and con­tin­ued aggres­sion against Ukraine, Russia
has learnt how to cir­cum­vent sanc­tions and still make prof­its from their main strate­gic
resources like oil and gas. At the same time Western law enforce­ment agen­cies start­ed
pay­ing seri­ous atten­tion to their own Western com­pa­nies that con­tin­ue cut­ting deals with
Russia. By the end of 2023, it became clear that Western com­pa­nies would be oblig­ed
only to enter deals with coun­ter­parts that were will­ing to guar­an­tee not to resell prod­ucts
to Russia through enforce­ment of intel­lec­tu­al prop­er­ty rights.

In 2023 it is notice­able that the anti-war coali­tion did a bet­ter job of coor­di­nat­ing sanc­tions.
Yet sanc­tions obser­va­tion is not mon­i­tored thor­ough­ly and in 2024 more efforts would be
imple­ment­ed to adapt tech­niques that will help to trace prod­ucts to the end user. The
inter­na­tion­al sanc­tions pol­i­cy was scru­ti­nized in 2023 and faces more stricter approach­es
in 2024. Key polit­i­cal fig­ures in the West have under­lined the impor­tance of observ­ing the
inter­na­tion­al sanc­tions and out­lined the risks involved in help­ing Russia to evade
sanc­tions.

Russia’s Sanctions Evasion Report 2023 — 2024
Focus: Central Asian Countries, Caucasus, and China