Inside Russia's Fake Transit Scheme to Evade Western Sanctions

Over 2,200 individuals and entities are subject to EU sanctions against Russia as of September 2024. The EU has imposed both trade and financial sanctions on Russia since 2014 making Russia the most sanctioned country in the world. 

Sanctions have been placed on “Russia’s financial sector, aviation, and shipping, strategic sectors of the economy such as defence, aerospace and energy, individuals close to the Putin regime and those facilitating Russia’s invasion of Ukraine, including actors in third countries” UK Parliament said. 

However, many questions remain on how effective these sanctions really are, as Russia repeatedly finds ways to circumvent them.

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A recent investigation by Istories / Important Stories, an independent Russian investigative news organization, found that $5 billion worth of sanctioned goods disappeared during transit through Russia. In 2023, European Union shipments including sanctioned goods that were destined for countries in Central Asia and the Caucasus, never reached their final destinations.

Sanctions on goods were placed on Russia to reduce the country’s ability to wage war, depriving them of critical technology to weaken its industrial base significantly. Imposing sanctions against Russia includes the ban on selling, supplying, transferring, or exporting directly or indirectly goods which could contribute to Russia’s industrial capacities. 

Sanctioned goods are mainly classified under what’s called HS chapters;  
HS 28 (Chemicals); HS 84 (Machinery); HS 85. (Electronics); and HS 87 (Vehicles). 

Within these groups are many “dual-use goods” which are goods that could be used for both civil and military purposes such as software for drones, engines, encryption devices, etc. 

Dual-use goods also fall under the “No Russia Clause”. Since December 2023, this clause has applied to EU exporters prohibiting the re-exportation to Russia. Also falling under this clause are “advanced technology items used in Russian military systems found on the battlefield in Ukraine or critical to their development, production or use of those Russian military systems, and aviation goods and weapons.” 

Istories found that 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.” These goods included “dual-use goods, microchips, and means of production.” They found that only $9 billion worth of goods reached their destinations, suggesting that $5 billion worth of goods disappeared along the way.

How does the sanctioned transit scheme work?

Alexei, an employee of a company involved in importing sanctioned goods into Russia told Istories about how the scheme works. 

He claims that a company from Central Asia, the Caucasus, or China orders the goods from the EU and arranges land transit through Russia. Many sanctioned goods enter Russia through bordering Belarus, imported from Finland, Latvia, and Estonia. 

The goods cross EU borders using their transit declaration with a destination listed as a Kazakh or Chinese company. When the cargo has passed through the EU, what he calls the “buffer zone” and reaches Belarus for example, the carrier simply crosses out the destination listed and re-writes “Russia, Moscow”. 

At the border, carriers also provide documents stating the change of delivery per the “Convention on the Contract for the International Carriage of Goods by Road of 1956 (CMR )” Several countries such as China, Kazakhstan, and Azerbaijan allow their goods to be transported through Russia. These countries were listed as cosigners of the CMR, Istories reported. Under the CMR, the transportation of goods is then allowed into Russia. 

Istories also found that many customs documents were incomplete, some hadn’t specified the border crossing point and some lacked information about sending companies, making it difficult to establish the amount of sanctioned goods imported into Russia through this scheme.

Lithuanian customs are aware that “more and more attempts are being made to transport goods via a strange route” and announced that they “will pay more attention to the export and transit control of goods transported to third countries through Belarus and Russia.” 

Their customs office announced that they have “reasonable suspicions that the final destination of such goods is Russia, and by choosing such a route, an attempt is made to circumvent sanctions.”

Companies involved in the scheme

Kvazar Corporation

Kvazar is a Russian microelectronics supplier, that has been under US sanctions since May 2023. Istories found that in September 2023 a shipment for Kvazar with parts made by German Siemens  worth around $35 thousand was passed over a Finnish-Russian border crossing. In 2023, $10 million worth of goods, $5.8 million of those that were sanctioned, were imported from the European Union to Kvazar, all crossing the Finnish crossing. 

The goods likely passed into Russia via the fake transit scheme. Kvazar uses four companies in China, Hong Kong, Azerbaijan, and Turkey. Kvazar is one of the dozens of Russian companies that continue to import sanctioned goods directly from the European Union.

Baltic Chemical Complex (BCC)

Baltic Chemical Complex (BCC) is one of the largest importers using the scheme, according to Istories. They found that “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 their shipments were made after the import ban.”

The transit entered Russia via Belarus and the Estonian city of Narva. The shipper was China National Chemical Engineering Construction Company No. 7, the contractor of the BCC project. Istories claim that most likely China bought the equipment directly from manufacturers and “resold it to BCC during transit.” 

UK Parliament recognizes that Russia is finding methods to circumvent a variety of sanctions and stated that “efforts have also become increasingly focused on the prevention of sanctions evasion and the role of third-party enablers internationally.”