Russian President Vladimir Putin. Reuters
Despite tough U.S. sanctions that limit Russia’s access to Western technology and consumer goods, the Kremlin has shown a surprising ease in finding regulatory loopholes and exploiting legal loopholes.
Russia’s economy has proven resilient and continues to grow despite two years of war and predictions of decline. Experts attribute this achievement to a diversified economic structure and abundant natural resources that have allowed Russia to better cope with international pressure and attempts to isolate it.
In addition to this, strategic government interventions and policies aimed at boosting domestic production and reducing dependency on imports have also brought economic stability to Russia.
Recent surveys by Russian customs officials show that imports have almost returned to pre-war levels and prices have risen sharply. These imports played a key role in supporting vulnerable sectors such as aviation and automotive.
This phenomenon, which researchers call the “sanctions gap,” refers to the re-export of a wide variety of items to Russia, ranging from semiconductors to aircraft parts to iPhones. These goods often flow through companies based in China, Turkey and the UAE, and sometimes pass through Armenia, Kazakhstan and other former Soviet republics.
Concerned, the United States has announced expanded sanctions, White House spokesman John Kirby told reporters on Tuesday, saying new sanctions and export controls against Russia would be announced at the G7 summit in Italy.
How is Russia evading sanctions?
Critical technologies such as microchips from US companies such as Xilinx and Texas Instruments are aiding Russia in its war efforts, and Russia obtains these products through intermediaries in places such as Hong Kong and China.
Some experts say that with a significant increase in German car exports to Kyrgyzstan, much of which goes to Russia, it is not wrong to say that Europe is unintentionally supporting the war effort.
This is happening across Europe, somewhat compensating for the decline in direct exports to Russia. Reports suggest that the Russian military is using these routes to acquire Western military equipment, with more than 450 foreign components found in Russian weapons in Ukraine.
Russia has concealed the true nature and purpose of its acquisitions through a network of shell and paper companies, making it difficult for authorities to detect and stop these illicit transactions.
Proxies also play a key role in procuring Western technology, such as semiconductor chips critical to Russia’s war efforts and consumer goods. These intermediaries operate under the guise of legitimate companies and facilitate the acquisition of restricted products on behalf of the Kremlin.
Russia uses these proxies to protect itself from direct oversight, complicating efforts to track material flows and effectively enforce sanctions.
Additionally, Russia utilizes a variety of financial vehicles to facilitate sanctions evasion: from offshore accounts to shadow banking networks, the Kremlin moves funds to avoid detection and fund procurement.
This approach not only gives Russia access to banned products, but in a way makes a mockery of the effectiveness of sanctions.
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