Western Companies Supply Russia with Billions of Dollars Worth of Goods But They Do Not Realize It

In 2023, $5 billion worth of sanctioned goods disappeared during transit through Russia, IStories found out. The shipments from the European Union were destined for countries in Central Asia and the Caucasus — but never reached their final buyers. The fake transit scheme helps Russia evade sanctions, and compared to other import methods, it is the most profitable. That is how it works.

At the border

In early September 2023, a truck arrived in the Finnish village of Vaalimaa, at a road checkpoint on the border with Russia. There were parts made by German Siemens inside, worth about $35 thousand. Finnish customs officers easily let the goods through, and soon the cargo was waiting for customs clearance in the Russian town of Torfyanovka.

In October, the Finns again gave the green light to a batch of parts. Among the goods there were Italian and German electronic components banned for import into Russia.

Both shipments were intended for Kvazar, a major Russian microelectronics supplier, which has been under U.S. sanctions since May last year. In total, Kvazar imported about $10 million worth of goods directly from the European Union in 2023, and everything went through Finnish customs. Not all of the goods were prohibited for import, but most of them — worth about $5.8 million — were imported after the sanctions were imposed on the company.

Why did Finland allow sanctioned goods for a sub-sanctioned company to be imported into Russia? The customs representatives did not answer our questions. But, as the IStories investigation showed, they may simply not have known who it was intended for. This is possible thanks to the so-called fake transit scheme, with the help of which Russia could import billions of dollars worth of goods from Europe.

Between the borders

Sanctions prohibit tens of thousands of items from being exported to Russia. But only a small part of them — mostly dual-use goods — are also banned from transit through Russia. In this case, they can be imported through third countries. For example, the same Kvazar receives microchips from American Texas Instruments, Analog Devices and Qorvo from Hong Kong and mainland China. Last fall, planes with microchips for Kvazar landed at Moscow’s Sheremetyevo airport several times a week.

However, many things are also imported directly from Europe.

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Alexei, an employee of a company involved in importing sanctioned goods into Russia, told IStories that the scheme works as follows. A company in Central Asia, the Caucasus or China orders goods from the EU and arranges land transit through Russia. Then the cargo is sent to the eastern border of the European Union — many sanctioned goods enter Russia through Belarus, but often imported from Latvia, Estonia or, as in the case of Kvazar, through Finland, according to customs data reviewed by IStories. The goods cross the EU border under a transit declaration — ostensibly they are not destined for a Russian company, but, for example, for a Kazakh or Chinese one. But as soon as the goods are in the buffer zone, they are immediately re-registered for import into Russia.

“When the cargo has passed, for example, the Polish border, the carrier simply crosses out the column ‘place of delivery’ with a pen and writes ‘Russia, Moscow’ instead of, say, ‘Kazakhstan, Almaty.’ And he gives this set of documents to the Belarusian border guard,” says Alexei. The package of documents is also accompanied by a letter from the company-customer, which states that it changes the place of delivery in accordance with the Convention on the Contract for the International Carriage of Goods by Road of 1956, which regulates this procedure. And the recipient company becomes the sender.

An unusual picture can often be observed in the Russian customs database. A company registered in a country where overland transit through Russia is possible, such as China, Kazakhstan or Azerbaijan, is listed as the consignor of the cargo. But the customs office through which the cargo entered the country (this is indicated in a separate column of the customs declaration) will be on the border of Russia or Belarus with the European Union. IStories found many such import declarations with sanctioned cargo in the data for 2023.

Many of the declarations in the customs database reviewed by IStories are incomplete: some do not specify the border crossing point, while others lack information about the sending companies. Because of this, it is impossible to state with certainty the amount of sanctioned goods imported into Russia through this scheme.

But it is possible to roughly estimate the total amount of goods that could have ended up in Russia through fake transit. Using UN Comtrade’s open international trade statistics, we compared how many sanctioned goods EU countries sent to countries in the Caucasus and Central Asia — and how many of them eventually reached their final destination.

In 2023, more than $14 billion worth of HS 84, 85 and 87 goods were shipped from the European Union to Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, Turkmenistan, Mongolia, Armenia, Azerbaijan and Georgia. Many sanctions are imposed on imports of goods from these groups, as they include various dual-use goods, microchips, and means of production.

At the same time, according to data on these Russia’s neighbors’ imports, just under $9 billion worth of goods reached them. This may suggest that $5 billion worth of goods disappeared somewhere along the way.

In 2021, by comparison, imports to the above Caucasus and Asian countries from the EU under these nomenclatures were manifold less — as was the volume of missing goods. The EU exported nearly $6 billion worth of goods, while recipient countries reported imports of just over $3.5 billion. In 2022, EU exports almost doubled to $10.5 billion, while goods worth more than $6 billion were lost along the way.

Such fake imports are much cheaper than importing through third countries, Alexei explains. According to him, on average, sending a 20-ton truck from Poland to Russia will cost $5,500. Transportation of goods of the same volume through Turkey will cost about $11 thousand. Moreover, in addition to the cost of delivery, a fee for cargo downtime in the port may be added. Alexei says that, for example, in Novorossiysk, a seaport that accepts goods from Turkey, the queue for customs clearance now stretches for five to seven days. At the same time, before the war and the imposition of sanctions, transportation of goods by truck from Europe cost only $2,500, he added.

Across the borders

Kvazar is only one of dozens of Russian companies that continue to import sanctioned goods directly from the European Union, IStories found out.

For fake transit, Kvazar uses four companies in China, Hong Kong, Azerbaijan and Turkey. Some of them are involved in sanctioned imports for other companies as well. For example, China’s Yusha Group Co supplied European sanctioned electronic components to two other companies — Russian semiconductor manufacturers Ai Ti Si and Severnaya Zvezda (both now under sanctions). However, Yusha was sending shipments to them directly from China. And Hong Kong Dongfeng international group has two clients in Russia: Kvazar and Spetsvoltazh. The latter is a distributor of Western electronic components in Russia, and it fell under sanctions at the same time as Kvazar.

One of the largest importers in Russia using the fake transit scheme is Baltic Chemical Complex (BCC), a subsidiary of Rusgazdobycha. Among its beneficiaries is Artem Obolensky, former head of the board of directors of the Rotenberg brothers’ SMP Bank (which was sold to state-owned Promsvyazbank in December 2022). According to customs data, in 2023 BCC imported into Russia various ethane gas processing equipment from European manufacturers worth more than $68 million. More than a quarter of the shipments, worth $15 million, were made after July 1, when such equipment was banned from being exported to Russia.

The banned goods entered Russia via Belarus and Estonia’s Narva. The shipper was China National Chemical Engineering Construction Company No. 7, the contractor of the BCC project in the Leningrad Oblast. Most likely, the Chinese bought the equipment directly from the manufacturers and then simply “resold” it to BCC during transit.

Another company that actively uses transit from Europe is GTS Group. Among its clients are Russian metallurgical giants. In 2023, the company imported nearly $33 million worth of goods, including sanctioned goods, directly from the EU to Russia. The goods entered both directly from Latvia and through Belarus from Poland and Latvia. In February 2024, GTS Group fell under sanctions.

The European Union is aware of the fake transit. Lithuanian customs, for example, announced that it would check the documents of carriers more carefully and stop those they consider “suspicious.”

However, there is no solution to this problem yet, noted export control specialist Eric Woods of the U.S.-based James Martin Center for Nonproliferation Studies, in a conversation with IStories: “These imports are the hardest to detect — you need people in the country of delivery to check whether the shipment actually went where it was declared to go.”

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