Is the freight industry complicit, along with cargo owners, in circumventing trade sanctions imposed by the West against Russia in retaliation for its invasion of Ukraine?
The question has been prompted by reports that since 2022, a number of what could be described as Russia-friendly nations, mostly in Central Asia and the Caucasus, have massively increased their imports of European and US goods.
Kyrgyzstan's imports of automotive products, which were very low before the war, rose by 1,428% in 2022. Electrical machinery is up by more than 1,000%. It has also started importing aeronautical components from the US.
Exports to Armenia have increased by 184% over the last two years (x 4.2 from the United States, x 2 in 2023 from the UK) the state discovering a sudden passion for telecommunications equipment made in Europe. Between 2021 and 2023, Armenian imports of European machinery and transport equipment jumped by 317%.
Other states to rapidly acquire a taste for Western technology products include Uzbekistan, Kazakhstan, Georgia and also Turkey.
Interviewed recently by French business newspaper Les Echos, Michaël Levystone, an independent researcher specializing in Central Asia, noted that in Kazakhstan, imports of smartphones and computers from the European Union took off in 2022 while Kyrgyzstan has started importing aeronautical components from the US.
Dual-Use Goods
Some of these products are classified by the European Union (EU) as “dual-use goods” or “crucial advanced technologies” that can be diverted from civilian use for military purposes.
The upshot is that countries in the Caucasus and Central Asia – as well as the Emirates and Turkey – are suspected of serving as platforms for re-export to Russia.
These suspicions are corroborated by the increase, concomitant with these European imports, in exports from some of these countries to Russia. Trade is all the easier because several of these countries are part of a customs union with Russia.
And "in these countries, some Russians who fled the partial mobilization have set up companies without necessarily severing ties with their country of origin and are benefiting from the arrival of Western products”, Levystone argues.
Last July, the US Treasury sanctioned Kyrgyz companies, accusing them of having “frequently exported controlled electronic components and other technologies to Russia since Russia began its large-scale invasion of Ukraine”.
For its part, Armenia is said to be "actively using the sea route between the ports of Batumi (Georgia) and Novorossiysk (Russia) to re-export sanctioned goods to Russia", according to the LeaveRussia platform run by the Kyiv School of Economics.
In May 2023, the Financial Times reported that a billion dollars’ worth of “phantom” goods had been exported from the EU bloc to Russia's neighbors, notably Kazakhstan, but never actually arrived at their destination, fueling speculation that they ultimately ended up in Russia, enabling it to continue supplying itself with Western optical equipment or aeronautical components.
The surge in European products heading for the Central Asian republics and the likelihood of them being ‘triangulated’ towards Russia – thus offsetting much of the effect of the sanctions - has been on the EU’s radar for some time.
“No Russia Clause”
A European Commission spokesperson told AJOT that in the 12th package of sanctions (effective December 2023), “the EU adopted a ‘no Russia’ clause that obliges EU operators to include specific legal provisions in contracts when exporting advanced technology items outside partner countries. This permits to ensure that relevant legal provisions are included in all contracts and that operators in third countries are liable if any diversion to Russia happens down the supply chain.”
A 13th EU sanctions package, approved last week, steps up the fight against circumvention; the new listings include a Russian logistics company and its director involved in parallel imports of prohibited goods to Russia, and a third Russian actor involved in another procurement scheme.
Measures have also been taken against four companies registered in China and one each registered in Kazakhstan, India, Serbia, Thailand, Sri Lanka, and Turkey, trading in the area of electronic components, including of EU-origin, are also sanctioned.
As to whether the freight industry, along with cargo owners, have a case to answer in the circumvention of sanctions is open to debate.
No one was immediately available to comment at either the UK-based Global Shippers Forum (GSF) nor at the International Federation of Freight Forwarders Associations (FIATA) in Geneva when contacted by AJOT.
However, one of the sector’s major players, DHL Global Forwarding, responded with the following statement: "As a company, we prioritize full compliance with all relevant laws and sanctions across our transportation and logistics services. Upholding legal standards is paramount in our operations, reflecting our commitment to integrity and responsible business practices.”
As for Kuehne + Nagel, the Switzerland-based logistics and forwarding giant underlined that it had “exited Russia and all other CIS countries in 2022.”
The British International Freight Association (BIFA), said that as an advisory body, not a regulatory one, it could not do much more than provide advice about the risks involved in moving goods that are sanctioned to the countries in question which are then moved on to Russia, “and hope that its members heed that advice.”
Its guidance to members includes a recommendation that they check with the UK’s Export Control Joint Unit to establish whether or not a particular consignment is permitted and recommends to them that all correspondence with government should be in writing.
Last year, BIFA revealed that it had been contacted by members concerned at two shipments being tendered to them and which highlighted the difficulties of identifying attempts to circumvent sanctions.
In both cases there was an unsolicited approach from an overseas entity to ship goods from the UK, routings were complex and in one of them there was a request to mark the shipping documents as ‘being in transit’.
“In both cases, members declined the shipments – their decision was based on no one single fact, rather a cumulation of points and issues.”
