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9 Nov 2023

Maria Shagina, Foreign Policy

Why can’t the West stop supplying technology for Russian weapons?

9 November 2023

As Russia’s war in Ukraine enters its third winter, Western regulators enforcing sanctions on Moscow are finally turning their attention to Russia’s production and procurement of weapons and their components. Despite Western export controls on military goods and critical components, Russia has ramped up weapons production all across the board, from the drones and cruise missiles that rain death on Ukrainian civilians to the combat vehicles and artillery used to batter Ukrainian troops at the front. There are abundant reports of newly produced Russian weapons filled with Western components, such as powerful Kinzhal and Iskander missiles made with Texas Instruments chips and German coils.

The objective of Ukraine’s Western supporters is to disrupt every node in Russia’s military supply chains, deprive the Kremlin of its ability to procure military technology, and impose higher costs on the Russian military-industrial complex. As the war threatens to deplete Western stockpiles of some items, such as ammunition, the pressure is on to shift the balance between what the West can provide to Ukraine and what Russia can build on its own or procure from other sources, including Iran and North Korea. Thus, preventing Russia from circumventing export controls to access the supplies it needs to continue waging the war has become a top priority for Western regulators.

Since February 2022, the United States and 37 other countries have enacted wide-ranging export controls on Russia, but enforcement has been lagging. Russia has been successful in circumventing restrictions through a combination of tactics: rerouting critical imports via third countries or transshipment points, obfuscating customs data, and using civilian proxy entities to redirect items to military firms. Since Russia’s military production relies heavily on foreign components, companies registered in countries not participating in the sanctions—such as China, Turkey, and the United Arab Emirates—became key hubs for the reexport of Western technology...

To improve sanctions enforcement and restrict Russia’s ability to resupply its military, the G-7 countries have increased monitoring of their companies. Regulators have issued multiple guidance and red flag alerts to keep companies abreast of a heightened risk of export control violations...

To boost efforts at export controls, a new international coalition was formed in June. Dubbed the Export Enforcement Five (or E-5, consisting of Australia, Britain, Canada, New Zealand, and the United States), the group has issued joint guidance to coordinate export control enforcement and prevent the diversion of critical items to Russia through third countries. This new development shifts the burden of compliance from exporters to the banking sector. Banking institutions are now asked to enhance their due diligence on top of the already existing sanctions compliance obligations. This could include requests for additional documentation, such as end-user certificates and contracts, as well as looking out for unusual or abnormal transactions.

The pressure seems to be bearing fruit. As of September, U.S. banks had reported 400 suspicious transactions to the U.S. government. The U.S. Commerce Department has utilized these reports of suspicious activities in one-third of its investigative cases, including one that involved three Russian nationals accused of sending U.S. microelectronics to Russia via third countries. As the result of successful collaboration among U.S. government agencies, such as Task Force KleptoCapture and the Disruptive Technology Strike Force, multiple illicit procurement networks have been uncovered. The latest case involved disrupting Russia’s international supply chains for semiconductors and dual-use electronics via China, Turkey, and the UAE.

The EU, too, is gradually stepping up its efforts to investigate evasion. Late October, a court in the Netherlands convicted a dual Russian-Dutch citizen of illegally selling computer chips to companies linked to Russia’s defense sector, rerouting the shipments via the Maldives...The EU’s upcoming 12th sanctions package is slated to address a weak spot of EU sanctions—the reexport of critical items. If the measure is adopted, EU companies would finally be obliged to add clauses to their contracts prohibiting the export of weapons components to third countries, as it is already the case in the United States. Brussels has also improved its information sharing by compiling member states’ national lists of export controls...