Russia evading sanctions thanks to 'shadow trade deals'

A raft of sanctions imposed on Russia following its invasion of Ukraine in 2022 were designed to cripple its economy and its ability to finance the military industrial machine required to sustain the illegal occupation of its neighbour.

However, a report authored by Dr Alexander Kupatadze (King's Russia Institute) and Dr Erica Marat (National Defense University) has found that Russia has been able to soften the impact of the sanctions through a series of informal and shadow trade networks with its neighbours, including Georgia, Belarus and Kazakhstan.

By analysing import and export data before and after February 2022, and cross-referencing with a series of products and commodities included in international sanctions, the researchers were able to identify a number of red flags, where nations were reporting unexpected fluctuations in trade volumes, a lack of transparency in the reported origin of goods, and an absence of consignees.

Dr Kupatadze said: "We found that sanctions-busting has become a significant problem in Russia's neighbouring countries and that it involves a wide range of actors, including legal businesses and private individuals.

"Our research has shown that sanctions have not cut supplies to Russia but have instead empowered trade networks and intermediaries of various kinds by creating additional sources of income for them.

"In some cases, transiting goods are probably re-exported to Russia with implicit approval from Western producers who have formally committed to new trade restrictions. States neighbouring Russia turn a blind eye or actively cover up transit of sanctioned brands and services via their territories."

The researchers also found that Georgia and Kazakhstan were facilitating the transit and re-export of sanctioned Russian products to third countries, including oil, wood and wheat, which was helping to finance its military while proving sizeable boosts in income for their own countries.

The findings were revealed in a new report, Under the Radar: How Russia Outmanoeuvres Western Sanctions with Help from its Neighbours, compiled for the Serious Organised Crime and Anti-corruption Evidence (SOC ACE) research programme. Funded by the UK's Foreign, Commonwealth & Development Office, SOC ACE is a new component in the Anti-Corruption Evidence (ACE) research programme, alongside Global Integrity ACE and SOAS ACE. SOC ACE is managed by the University of Birmingham.

In the report, the academics make a series of recommendations to help combat the regime of sanctions evasion, including encouraging firms in the West to carry out more thorough due diligence on partner entities in countries that neighbour Russia, increasing reputational risk for brands in aiding sanctions evasion, and engaging with governments in the Caucasus and Central Asia to bolster scrutiny of merchanting trade and re-exports.

You can read the report in full here.