11 January 2024

KSE Institute, together with the Yermak-McFaul International Working Group on Russian Sanctions, is releasing a joint study, “Challenges of Export Controls Enforcement”, that provides a detailed analysis of how Russia continues to import components for its military production and what steps are needed to strengthen the export controls regime. According to the study, Russia imported more than $22 billion in components seen as critical to its military industry in the first ten months of 2023 – despite comprehensive export controls.

The report looks at almost 2,800 foreign components found in Russian military equipment destroyed or captured on the battlefield – and the companies responsible for their production. This includes Kinzhal hypersonic missiles and Shahed drones used for concerted attacks on Ukraine’s civilian infrastructure as well as armored vehicles, helicopters, and electronic warfare equipment. Components from Western companies are present in almost all of them.

An analysis of transaction-level data on Russian trade shows that imports of battlefield items (as defined by the U.S., EU, and other allies of Ukraine) almost fully-rebounded in 2023 from the sharp drop experienced in the immediate aftermath of the full-scale invasion – they are down 10% vs. the pre-sanctions period. For other components, we find more encouraging signs with regard to Russia’s ability to acquire them – imports are down by close to 29%. This demonstrates that export controls – if properly enforced – can make a real difference.

When it comes to the circumvention of export controls, Russia explores loopholes in the sanctions regime on all stages of the supply chain. Importantly, it is able to acquire goods from producers that are located in coalition countries via third countries – almost half of all battlefield goods imports in January-October 2023 came from such companies. Even worse, almost all foreign components found on the battlefield come from coalition-based producers. For the most part, they are manufactured offshore and reach Russia through distributors in China, Hong Kong, Turkey, etc. This points to insufficient compliance efforts by producers. 

The report also takes a detailed look at over 250 Western companies whose products have repeatedly appeared in Russian weapons on the battlefield, including, most notably, Analog Devices and Texas Instruments. While some of them have successfully reduced the amount of goods that end up in Russia by implementing better internal due diligence procedures, much room for improvement remains. In the first ten months of 2023, these companies supplied a total of $2.9 billion worth of critical components to Russia. Ultimately, the companies’ risk assessments will only change when enforcement agencies demonstrate a willingness and ability to investigate illicit transactions and impose substantial fines.

A specific category of products deserves particular attention: CNC machinery tools. Here, the data shows that Russian imports of such equipment from its most-important Western suppliers have risen markedly since the full-scale invasion to $292 million in January-October 2023 – a 33% increase vs. the pre-sanctions period – with Germany, South Korea, and Taiwan together accounting for over 82%. Many of the Russian buyers of CNC machine tools – and other components critical for Russia’s war on Ukraine – are still not sanctioned or at least not sanctioned across coalition countries beyond the United States.

KSE Institute and the Yermak-McFaul International Working Group on Russian Sanctions urge policy makers to take action to ensure that export controls stay ahead of Russian circumvention efforts. Measures need to consider distinct challenges on various stages of the supply chain and require specific solutions. They should aim to (i) close export controls policy gaps; (ii) bolster corporate responsibility; (iii) target third-country circumvention, and (iv) strengthen institutions and cooperation.

The full report is available via the link.