Evading Export Controls – Russia’s Key to Success

The Yermak-McFaul International Working Group on Russia Sanctions last month published its Working Group Paper #16: Challenges of Export Controls Enforcement – How Russia Continues to Import Components for Its Military Production, discussing export control enforcement challenges limiting Russia’s access to goods needed for military production. The paper assesses that Russia continues to import components for its military production and provides policy recommendations for how international actors can help prevent this activity.  

The Situation

Russia has used third-party intermediaries to evade sanctions and export controls for years and has disguised the involvement of SDNs or sanctioned entities in transactions to obscure the true identities of end users. This activity has increased since Russia’s invasion of Ukraine in 2022 due to Russia’s need for military equipment.

The paper highlights the main challenges of enforcing export controls against Russia, including: 

1. Insufficient compliance efforts by entities in coalition countries; 
2. Inadequate efforts to hold third-country intermediaries facilitating export controls evasion accountable via sanctions or other restrictions; 
3. Inconsistent or inadequate regulations on sanctioned items; and 
4. Jurisdictional issues within the coalition that include limited coordination in the area of export controls.  

Recent Efforts

The paper stresses the importance of addressing these challenges by closing policy gaps, strengthening government institutions, targeting third-country circumvention, and enhancing multilateral cooperation in the field of export controls. 

On March 2, 2023, U.S. Department of Commerce’s Bureau of Industry and Security (BIS), the Treasury’s Office of Foreign Assets Control (OFAC), and the Department of Justice (DOJ) issued a joint compliance note on Russia-related sanctions evasion and export controls. The note is the first collective effort between the three agencies to provide the private sector with guidance on compliance with U.S. sanctions and export laws.  

The United States, UK, and EU, among others, have increased their focus on enforcement, updated sanctions lists and export controls to limit Russia’s access to sensitive technologies, and taken steps to punish illicit actors assisting Russia. Governments are increasingly working together to hold those who help Russia evade sanctions and trade controls accountable. 

• OFAC in early December designated a network of individuals and entities, led by Belgium-based businessman Hans De Geetere, that provided military-grade technology to end users in China and Russia. De Geetere’s network included four other individuals and nine entities based in Russia, Belgium, Cyprus, Sweden, Hong Kong, and the Netherlands. De Geetere and his network were able to unlawfully re-export advanced US technologies to China and Russia by claiming the products were intended for export to Belgium, then using transshipment points in other countries, including China, to ship the electronics to Russia. OFAC’s action was in coordination with BIS, which included de Geetere and his companies on the Entity List, the Justice Department, which indicted him for conspiring to ship sensitive military-grade technology to Russia and China, and Belgian authorities, who arrested him.  
• The UK in early December announced 46 new sanctions targeting individuals and entities including businesses in China, Türkiye, and the United Arab Emirates that are involved in re-exporting war materials to Russia.  
• The EU also in December adopted its 12th package of economic sanctions that included a requirement that EU exporters contractually prohibit re-exportation of sensitive goods and technologies to Russia that are critical for military use.  

Recommendations

Recent developments suggest that efforts to stop Russia from gaining access to critical goods and technologies are improving. However, the recent Working Group Paper suggests several steps for strengthening export controls and closing loopholes, including:  

1. Closing export controls policy gaps by aligning, simplifying, and expanding regulations across jurisdictions; 
2. Strengthening government institutions, including tracking goods throughout the supply chain; 
3. Improving compliance efforts within the private sector; 
4. Targeting third-country intermediaries responsible for circumventing export controls; and 
5. Improving cooperation across jurisdictions and the exchange of information to stop dual-use goods shipments from reaching Russia.