Russia has developed increasingly sophisticated networks to circumvent sanctions levelled against it by Europe and other western allies, in what has become a constant game of “cat and mouse”, according to the EU’s sanctions envoy.
Through a complex chain of transactions often involving multiple shell companies, battlefield products and components made in European factories move through places such as Turkey, Gulf states, southeast Asia and later China, to disguise the fact they are to ultimately end up in Russia to be used in the war against Ukraine.
“There are hundreds, maybe even thousands of people in Moscow and St Petersburg who come into the office every morning, with only one objective, which is to circumvent our sanctions,” David O’Sullivan said.
Mr O’Sullivan previously served as secretary general of the European Commission, the top civil servant in the EU’s executive arm that proposes laws. Later, he was the EU’s ambassador to the US during Donald Trump’s first term in the White House.
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Now the Irish man is the EU’s sanctions envoy, responsible for trying to stamp out efforts to evade sanctions that aim to cut off the flow of weapons and military products to Russia and choke the country financially.
“What we have discovered is the Russians are very clever in putting in place very complex systems of sanctions evasion. So it goes from a factory in Europe to somewhere relatively innocent, then ends up [elsewhere] in our neighbourhood, and maybe the Gulf, then maybe Asia and finally maybe Russia,” he said.
Mr O’Sullivan said the aim of sanctions was to deprive Russia of the technology, products, revenue and industrial capacity to keep fighting, or at least make it more difficult to do so.
“They have a very professional team of people whose job it is to circumvent sanctions ... It is a game of cat and mouse,” he said. There was evidence that Russia was now paying up to 300 per cent more for battlefield products as a result of the sanctions regime.
“The objective is to make it harder, to make it much more complicated, slower, so the supply chain becomes less reliable, more unpredictable and more expensive,” he said.
There have been 14 packages of sanctions approved by the EU since the start of the Ukraine war in early 2022. Officials are working on a 15th bundle which is expected to be signed off later this month.
EU officials involved in that work indicate some of these new measures will target companies and entities in Russia’s procurement networks used to avoid sanctions. It is understood work is also under way to single out banks that facilitate the flow of money used by those Russian networks.
“Sanction circumvention is like the drug trade, there’s money to be made and somebody is going to try it on. The issue for the national governments is that if their country gets a reputation of being a platform for circumvention this is very damaging,” O’Sullivan said.
Many of the most crucial components in Russian drones and missiles continue to be western made, according to officials in Kyiv, he said.
“So the more we can stop these getting to Russia, the more we can reduce Russia’s ability to produce lethal weapons which kill Ukrainian civilians,” O’Sullivan said. “These components are not easy to substitute so any effort to shut down a channel of circumvention disrupts the value chains of the Russian military industrial complex.”
It has been well established that Iran has been supplying Russia with drones, but more recently the spotlight has been put on China, which has consistently denied directly supplying Russian leader Vladimir Putin with military hardware.
A high-ranking EU official recently indicated that some intelligence sources suggested a factory in China was producing drones for Russia. If hard evidence emerges then EU diplomats and officials will likely seek to hit Beijing with sanctions.
O’Sullivan said China and Hong Kong already play a crucial role in allowing Moscow to circumvent EU sanctions and backfill the supply of products European companies are barred from selling to Russia.
The sanctions envoy said large European companies are very conscious of the reputational risk if their products end in Russian hands on the battlefield. “The problem is not that these companies are allowing circumvention, but it is at a certain moment they can lose control over where the product goes,” he said.
Russian efforts to evade restrictions are sometimes similar to online phishing, where a European company who previously might have sold something to Russia, now suddenly receives large orders of the same goods or parts from somewhere in central Asia.
“They’ve had to learn, some of them the hard way, this is actually a scam and [they’re] at risk of doing something illegal. Sanctions circumvention is now a crime in all 27 member states.”
Earlier this year, officials discovered that Russia was procuring products by buying them from overseas subsidiaries of western companies.
“I don’t blame the companies, I don’t think they could have seen it coming because, as I say, they’re not selling to Russia. They’re not even selling to Hong Kong, China. They are selling through a very complex chain of trafficking, which is designed to disguise the ultimate destination of the products.”
Future sanctions packages may include stricter rules requiring European firms’ manufacturing subsidiaries abroad to include clauses in contracts to prohibit any resale of products to Russia by future buyers.
Shutting down channels of circumvention is a constant “whack-a-mole” effort, as new ones pop up all the time, he said. “I’m not under any illusion that sanctions alone will bring an end to this war, but what they can do is seriously undermine Russia’s ability to sustain it and win it.”
O’Sullivan said America’s basic national security interests have not changed following the election of Mr Trump. During the campaign the president-elect suggested he could end the Ukraine war in 24 hours. Western allies fear this could mean forcing Kyiv to agree to give up large parts of its territory occupied by Russia by threatening to cut off crucial US military and financial support. But O’Sullivan said: “It is not in America’s national security interests that Mr Putin wins in Ukraine.”
O’Sullivan said there would probably have been a drift towards a more isolationist outlook in American politics, no matter who won the US election. As a result Europe had to be able to stand on its “own two feet” when it came to being able to defend itself.
“We have to be better able to look after our own security. That’s not to diminish the role of Nato, the transatlantic alliance, but we have to be better able to defend ourselves. That requires, frankly, an investment which we are sort of beginning to make. We shouldn’t deny that there is a lot of progress, but we have to make a lot more.”
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