Sanctions Evasion: Washington Went Bear Hunting

On November 2, 2023, the Office of Foreign Assets Control and the U.S. Department of State cracked down on an additional 192 entities and 37 individuals in the newest rollout of sanctions against the Federation of Russia and those fueling her war machine. Janet Yellen, U.S. Treasury Secretary, delivered her remarks: “Russia is dependent on willing third-country individuals and entities to resupply its military and perpetuate its heinous war against Ukraine, and we will not hesitate in holding them accountable.”

Sanctions, one of the most favored governmental tools in combating foreign policy challenges, manifest in many ways: asset freezes, travel bans, arms embargoes, trade restrictions, and withdrawal of financial services are a few examples. Though Congress continues to contemplate passing another Ukrainian aid support bill, the Treasury has been quick to fight the Ukrainian war with an economic arsenal. 

Each of Washington’s most recent perpetrators are pursuant to Executive Order 14024, an action aimed at disrupting the networks and channels through which Russia supports its military-industrial base, finances its energy and extractives sectors, and evades sanctions. Most of these targets are based in Russia; Washington has made it clear that those specifically involved with the recent horrific attacks against Ukraine would not go unpunished. Firms like Arctic-2 LNG, an underground company focused on distributing liquefied natural gas around the world, ZALA Lancet, the producer of the Russian military’s suicide drones, and a Russian mining group of the world’s largest titanium ore deposit were hit the hardest by the U.S. Treasury. Financial and industrial powerhouses like Gazpromneft Catalytic Systems LLC were called out as well.

Since Russia invaded Ukraine in late February 2022, the Biden Administration has imposed sanctions as a means of supporting Ukraine without putting American soldiers on Eastern European soil. At the same time, the Kremlin has streamlined supply chains and preserved financial flows through its neighboring “friendly countries”. Russia has fostered particularly tight economic networks in the Caucus and Persian Gulf regions, successfully sidestepping America’s sanctions against its defense industry along the way.

Seemingly hand in hand with the mother bear, actors in China, Turkey, the United Arab Emirates, Czech Republic, Kazakhstan, and Uzbekistan continue to aid Moscow’s weapons systems. The UAE’s ARX Financial Engineering and four of its employees were placed under sanctions for allegedly allowing the already-sanctioned Russian bank VTB to convert roubles into U.S. dollars and allow Russian entities to transfer financial assets into the Gulf state. The U.S. is treading lightly: amidst pursuing negotiations with Turkey on Sweden’s NATO membership and stable ties with China at the Asia-Pacific Economic Cooperation summit in California, American foreign policy has a Russian-sized thorn in its side.

How exactly has Moscow been skirting around Washington’s economic hits? The illegal practice of sanctions evasion is puzzling, often involving a messy web of underground transactions. One method of sanctions evasion is owner obfuscation, the processing of payments in various currencies between family members, shell companies, or other intermediaries to confuse ownership of assets. As sanctioned Russian entities often steer clear of commercial banks, convertible virtual currencies like cryptocurrency have become popularly sly alternatives for payments. Coupled with document falsification about goods or shipping routes, trade-based evasion unites neighboring bad actors: Kazakhstan and Uzbekistan have especially come under scrutiny for under-the-table bribery and corruption over their Russian border controls. Additionally, sanctions-neutral jurisdictions such as India, Brazil, China, Turkey, the UAE, and some former Soviet Union states are hotbeds for sanctions evasion, as Russian-designated persons seek to transfer their assets there. 

“Every sanctions decision must work in full, so that there is no chance for Russia to bypass them,” stated Ukrainian President Volodymyr Zelensky in his public service announcement on the day the sanctions were announced. As long as the Russian economy can survive, Putin’s dream of claiming victory by preying on Ukraine’s fatigue and outlasting the West’s willingness to fund the endeavor will slowly start seeming more realistic. 

With the Biden administration’s bold strokes against Putin’s sanctions evasion, the West will likely continue to pressure the Russian economy and issue warnings to financial institutions until the bear has lost its appetite for its resource-draining war. By doing so, Putin’s oligarchical circles and industrial giants will be targeted by regulators and researchers alike with hopes of uncovering the complexity of Russia’s sanctions evasion schemes. Desperate to get off the gray list, the UAE has already begun to crack down on its banks due to the fresh sanctions. It’s hopefully not long before other Russian-friendly states follow suit.

Faith Austin is from Carmel, Indiana, studying International Comparative Studies and Russian

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