That’s surprising, because the coalition of countries opposing Russia’s war on Ukraine has implemented significant measures to impede Russia’s ability to sustain its aggression. The U.S. and the European Union reacted to the events of February 2022 by swiftly introducing extensive export controls. For a few months in the spring of 2022, Russia encountered difficulties in accessing critical components, leading to production halts in its military complex due to parts shortages.
The unwavering support of the U.S., the EU, and their allies for Ukraine is evident. Nonetheless, many of the measures imposed have been innovative and unprecedented, and as a result some have not yielded the intended results. Russia, unfortunately, is using our equipment against Ukraine. It is crucial for both the public and private sectors to enhance the implementation and enforcement of export controls to prevent that from continuing.
Export controls were imposed on Russia and Belarus to prevent their militaries from obtaining Western components, while consumer goods were omitted to protect the civilian population. These export controls for dual-use goods and critical technology are even more stringent than those applied on the sanctioned Chinese telecommunications firm Huawei. Additionally, the U.S. has implemented a stricter version of the Foreign Direct Product Rule, which extends U.S. export controls extraterritorially to components produced outside the U.S. that use U.S.-origin technology, software, or equipment. This means that Russia’s military should not be able to receive any U.S. products other than food and medicine.
But components are slipping through despite these efforts. Ukrainian authorities have dismantled nearly 60 pieces of Russian military equipment discovered on Ukrainian soil. These include missiles, drones, armored vehicles, and helicopters. The Ukrainian Ministry of Defense has identified more than a thousand components of Western origin used in the production of these items. Notably, two-thirds of these components are supplied by U.S.-based companies, with other significant contributors including Japan, Germany, Switzerland, Taiwan, and the Netherlands.
Those findings mean that Russia has been unsuccessful in its efforts to decrease its dependence on Western nations for military production. This became a particular priority following the initial wave of sanctions related to Russia’s occupation of Crimea in 2014.
During the second half of 2022, Russia’s imports of critical components increased approximately 9% compared to the year before, eventually reaching pre-invasion levels by December 2022. However, data for 2023 suggests a deceleration of around 14% compared to the fourth quarter of 2022. This decline could potentially indicate that Russia has become more skilled at concealing its transactions.
China and other countries that do not align with international sanctions on Russia play a crucial role in facilitating Russia’s access to Western components for military purposes. Researchers have discovered that Russia is obtaining Western parts through on-shipment via third countries, a practice that has gained the attention of authorities. Over 80% of these on-shipment activities occur through three countries, with China and Hong Kong accounting for approximately 70% of the total transactions, followed by Turkey. (This data covers March to December 2022).
Additionally, our research has uncovered a new innovative method employed by Russia to bypass export controls, which we refer to as “on-production.” Surprisingly, this method has not yet drawn the attention of policy makers. Once again, China plays a significant role in this process. Around 80% of Western critical components shipped to Russia are actually produced in China, Malaysia, Vietnam, and South Korea (data from March to December 2022). This reveals an intricate web of involvement from countries that are enabling Russia to evade export controls and access the components it needs. It also raises concerns about what Western companies know about Russia’s use of their products to attack Ukraine.
The presence of dual-use goods complicates the tracking process through export controls. Russia has established channels that obscure the origins of these items by involving third countries as intermediaries. For instance, computer components found in Russian ballistic and cruise missiles might have initially been purchased for nonmilitary purposes, such as Russia’s space program.
Only a few international companies dominate Russia’s military equipment supply chain. Authorities must collaborate with these key companies to establish improved reporting standards and risk-based analyses. U.S. institutions responsible for export controls critically need more resources, including for data-driven analysis. Governments should also track financial transactions and engage with the banking sector. Enhanced disclosure requirements and information sharing between banks and corporations can help identify export control violations. Corporations and banks must understand the consequences of their lenient procedures, which grant Russia unauthorized access to critical technology.
The U.S. alone cannot address this issue. The international coalition opposing Russia’s invasion of Ukraine must intensify cooperation and information exchange to enforce stricter export controls, thus preventing Russia from utilizing Western technology to attack Ukraine.
By: Elina Ribakova, BARRONS
