How can Russia circumvent international restrictions and what should be done?

More than 20,000 sanctions have been imposed on Russia since the Ukrainian Crimea invasion in 2014. In this way, Ukraine and its international partners are trying to force the Kremlin to stop waging a war of aggression. Is there any progress in this regard?

According to Trading Economics the Russian industry was in sharp decline year after year. But there is an exception. The Russian military sector is showing growth.

“For military production, Russia needs chips, semiconductor components, and raw materials such as lithium. However, Western export controls are supposed to restrict the flow of these technologies to Russia. So how is Russia boosting military production if it is in fact deprived of Western inputs? It is now clear that Russia is circumventing sanctions,” Atlantic Council analysts concluded.

How to neutralize Russian sanctions evasion schemes?

The G7 countries, together with Australia and the European Commission, established the Russian Elites, Proxies and Oligarchs (REPO) Working Group to coordinate the "isolation" and "unprecedented pressure" on sanctioned Russian individuals and entities.

In order to deny Russian elites and proxies’ access to revenue, so-called sensitive goods and technologies, the REPO Task Force has identified certain "typologies of Russian sanctions evasion tactics" and is issuing recommendations to mitigate the risk of exposure to continued evasion. After all, it is only by "understanding how" Russia circumvents sanctions that we can "understand how" to prevent it.

So here are the typical ways in which Russians evade sanctions and the tools to counteract that evasion.

“Using family members and close associates to ensure continued access and control of property and assets”

Evgeny Prigozhin, one of the Russia's war crimes faces, has been under sanctions since 2016. However, this has not prevented him from earning more than $280 million from oil, gas, diamonds, and gold extraction outside of Russia. And Prigozhin's family members, co-owners of his largest assets, enjoy a luxurious life in Europe, according to a Financial Times investigation.

Veronika Prigozhina, daughter of the Wagner Group leader and co-owner of the Red Stars Hotel, never stopped indulging in the most elite pastime of the nobility – regular participation in prestigious equestrian tournaments in Germany, France, Portugal, Italy and Belgium.

Prigozhin's mother, Violetta, managed to get the sanctions partially lifted, although she is a co-owner of her son's largest assets, including Concord Management and Consulting LLC.

His eldest daughter Polina, son Pavel and wife Lyubov also "play different roles in Prigozhin's business," which benefits from "his privileged status in the Russian elite."

Thanks to the relatives, the sanctions against Prigozhin's Concord group of companies have been less effective than expected.

“It is negligence,” says Petras Auštrevičius, a Lithuanian member of the European parliament in an interview with the Financial Times “Prigozhin and many Russian oligarchs and state officials openly work against the west, and at the same time they and their families enjoyed western luxury.”

“Using Real estate to hold value and complex ownership structures and shell companies or other legal entities and arrangements to avoid detection and disguise connection to assets and property”

Recently, Alisher Usmanov, a Russian billionaire, who admits to being friends with Putin, was barred from entering the UK and had his assets frozen. Earlier, similar sanctions were imposed on the Kremlin's longtime sponsor, by the European Union.

Alisher Usmanov's fortune is estimated at $18.4 billion. The oligarch's business assets include more than 200 companies in various industries from metallurgy to information technology, luxury goods and numerous real estate properties. These include the Beachwood House residence in Highgate, North London, and the 16th-century Sutton Place estate in Surrey, along with a $600 million yacht.

However, as it turned out in the face of sanctions, most of the billionaire's real estate in Britain, for example, was "transferred to an irrevocable trust," which potentially removed it from restrictions. In this case, it is extremely difficult to identify the specific owners, and the management and ownership of the property is carried out through an intricate network of funds and companies registered in places with "conditionally transparent" jurisdiction. However, the United States and the UK have managed to do this.

“Joint US and UK targeted designations on a network of people and entities helping Russian oligarch Alisher Burhanovich Usmanov dodge sanctions demonstrate the sophistication and scale of sanctions evasion techniques. Members of this network have touchpoints in twenty jurisdictions around the world and operate in the law, financial services, wealth management, trust, and company service provider industries and use their businesses to facilitate sanctions evasion and money laundering” analysts say in the Atlantic Council report.

“Transferring assets and funds to countries that have not sanctioned Russia, including the United Arab Emirates, Turkey, China, Brazil, and India, among others"

Tens of millions of dollars’ worth of aircraft parts manufactured by American companies were shipped to Russia last year, The New York Times reports. Bypassing sanctions, Russian companies received components for Boeing, Airbus and other aircraft. The "hole in the sanctions wall" was revealed by Russian customs data collected and analyzed by the Import Genius aggregator.

The goods were transported through unofficial buyers, often located in the Middle East and Asia.

For example, dozens of consignments of copper wires, bolts, graphite, and other parts labeled as made in the United States entered Aeroflot's warehouses through free trade zones and industrial parks. Unidentified trading companies in the United Arab Emirates, China, Turkey, and the Maldives transported everything from simple screws to a Honeywell aircraft engine starter worth $290,000 to Russia.

How to "close the loophole" that allows Russia to spend at least $10 billion dollars a month on warfare?

G7 analysts have developed a number of recommendations, including:

• Ensure compliance with national rules, laws, including the recommendations of the Financial Action Task Force on Money Laundering (FATF), including reporting requirements, and monitoring of suspicious transactions;
• establish a public-private partnership;
• use inter-sectoral information exchange;
• regularly update risk assessment systems;
• disseminate awareness of sanctions risks and their impact on organizations;

Today, no high-level meeting is possible without discussing tools to prevent Russia from avoiding responsibility. It is already obvious that Russia has added to its image as a bloody aggressor the fame of a global financial and criminal offender. However, this also has a positive effect - never before have democratic countries worked so intensively and on such a large scale to harmonize their jurisdictions.