Russia sanctions: EU focuses on circumvention
Since the invasion of Ukraine on February 24, 2022, the EU has slapped 10 rounds of sanctions on Russia. These comprise listings of individuals, export and import bans, and sectoral measures in banking and transport, as well as the prohibition for Russian flights in EU airspace. Among the most important sanctions were the ban of Russian seaborne crude oil and a price cap for crude oil and petroleum products. Still, despite extensive sanction packages, the Russian economy hasn't contracted as much as forecasts in 2022 predicted.
For Robin Brooks, chief economist of the Institute of International Finance, the reason for that is a lack of sanctions in one important area. "When the West imposed sanctions on Russia, it carved out energy for fear that a full embargo would cause oil prices to spike and drive the global economy into recession," he said. Estimates for oil revenue windfalls alone were $215 billion dollars (€199.8 billion), Brooks said in a written statement to DW. "That doesn't mean sanctions didn't work," Brooks said, adding it meant that the energy carve-out had severe consequences, providing Russia with "lots of cash." The discussion now has been shifting to the enforcement of sanctions, which is according to Maria Demertzis of the Brussels' Think tank Bruegel, a "big problem."
Exports from the EU to Russia
The buzzword "enforcement" includes the evasion of sanctions because somehow EU goods under export ban still seem to find their way to Russia. "Foreign trade data available to us indicate that EU-sanctioned goods are exported to a considerable extent from the EU… to certain third countries and from there further exported to Russia,” the German Economy Ministry wrote in a paper published in February.
According to Economy Minister Robert Habeck (Green Party), who presented the paper to the press end of February, high-tech goods and other dual-use products that can be used for military purposes are being scrutinized.
Current sanctions forbid the export of technology — such as advanced semiconductors, electronic components, and software — to Russia. It is also forbidden to export dual-use goods like drones or encryption tools that can be employed for civil and military purposes from the EU to Russia.
When presenting his proposals for stronger enforcement of sanctions to the media Economy Minister Habeck said "clear evasions of sanctions" were also coming from Germany, not wanting to name third countries or firms involved.
Third country involvement
With no official record of the suspects, Demertzis said, "the big suspicion would be with countries that have not sanctioned Russia." In her opinion, two major countries are important in this regard — Turkey and China.
Beata Javorcik, chief economist of the European Bank for Reconstruction and Development (EBRD) and co-author of a study looking into trade data, offered three more names: Armenia, Kazakhstan and Kyrgyzstan.
In an online interview with DW, Javorcik said, "if you look at aggregate exports from the European Union to Russia, there was a dramatic drop in the volume of those exports by about 60%." At the same time, Western Europe increased exports to countries like Armenia, Kazakhstan, and Kyrgyzstan, she added. As these countries are — together with Belarus and Russia — in the Eurasian Customs Union (UACU), there were only minimal checks once the goods entered one of those countries, Javorcik explained. "This is very suggestive of exports that were going directly to Russia now being intermediated through those countries," Javorcik said.
Demertzis pointed out that it is very difficult to find data on this, as it is something that is being deliberately hidden. The key is to look at the balance of payment changes, in particular, how Western imports have changed, the economist said.
Another difficulty, according to Javorcik. is that the trade data does not give an indication of whether firms know products end up in Russia. Nevertheless, this is one area EU member states and the EU Commission are currently looking into.
EU and member states are working together
In a written statement, the German Economy Ministry confirmed to DW that the EU Commission and the German government closely monitor trade patterns in direct and indirect goods traffic between Russia and individual EU states to derive indications of circumvention shipments and other sanctions violations. General and country-specific results of these observations were not yet available, the ministry said.
"We are looking for examples of significant changes in trade flows, which are not in themselves evidence of circumvention because they could also be due to genuine trade diversion," EU sanctions envoy David O'Sullivan told DW in a phone call. Of particular interest, he added, were the countries neighboring Russia and with whom trade has increased significantly.
As the enforcement of sanctions lies with EU member states, the European Commission plays a coordinating role. O'Sullivan took office as special envoy for sanctions in January. "My role is to outreach to third countries where we believe there may possibly be risks of circumvention," O'Sullivan said, adding he was referring to those countries not aligned on sanctions.
Mounting pressure, first results and further travels
It is not just the EU that is reaching out to third countries, but also the US. In January, Turkey was among a group of countries visited by US Under Secretary for Terrorism and Financial Intelligence Brian Nelson. The NATO ally has been in the spotlight for a while and now seems to have taken steps to hinder sanctions evasion. As Bloomberg reported, the country has halted the transit of goods sanctioned in the EU or US as of March 1. Neither Turkey nor any of the other countries named in this article have reacted to DW's request for comment.
The political commitment to tackle the matter of sanctions circumvention is strong. In a joint statement after a meeting two weeks ago, the EU and US pledged to "aggressively" enforce sanctions and to deter and ultimately end circumvention, adding they would take "new steps together to target additional third-country actors across the globe."
The EU sanctions envoy seems to be playing his part in the approach. So far, O'Sullivan has traveled to Turkey, paid a joint visit to the United Arab Emirates (UAE) with his US and UK counterparts, and will soon travel to Kirgizstan, Kazakhstan, and Uzbekistan to address the situation. But, he emphasized, none of that should imply that these countries have been identified as concrete enablers for sanctions circumventions.
How member states crack down on companies for circumventing sanctions differs. In Germany, it can lead to criminal charges. "If concrete indications of this kind arise from trade statistics or other sources of information, these are forwarded to the responsible investigative authorities, who then commence criminal prosecution," the German Economy Ministry said. Until a possible criminal trial is initiated, information on violations of the law and the results of investigations are to be treated confidentially, the ministry added. Economy Minister Habeck, too, has drafted proposals aimed at making sanctions circumvention harder. These, according to his ministry, are currently being discussed with European partners.
Edited by: Jon Shelton