The Challenges and Imperatives of Export Controls in the Face of Russia’s Invasion of Ukraine

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In the wake of Russia’s full-scale invasion of Ukraine, a coalition of nations, including European Union member states, the United States, the United Kingdom, Japan, South Korea, and others, has imposed unprecedented export controls on the Russian Federation, particularly concerning dual-use goods. These measures aim to disrupt Russia’s access to critical inputs, including high-tech electronics, required for its military industry and war effort. This marks a significant test case for 21st-century export controls and technology sanctions, with lessons that extend beyond the Ukraine-Russia conflict.

Export controls, however, pose substantial enforcement challenges due to the intricate nature of global supply chains, the exclusion of major economies like China from the sanctions coalition, and limited experience and resources within coalition countries. Consequently, Russia has managed to secure substantial quantities of the materials it needs for military production. Between January and October 2023, imports of priority battlefield goods, as identified by the U.S., EU, UK, and Ukraine’s other partners, amounted to $8.77 billion, marking only a 10% decline compared to the pre-sanctions period.

For items deemed critical for Russia’s military industry, this figure rose to $22.23 billion. Of particular concern is the role played by producers from coalition countries whose products, manufactured abroad, find their way to Russia due to insufficient private sector compliance efforts. Shockingly, almost half of Russia’s imports in 2023 of these crucial goods originated from producers within the coalition.

This analysis underscores that export controls face persistent challenges, including third-country circumvention schemes, but also highlights the continued involvement of producers from coalition countries in trading with Russia through third-country intermediaries. Urgent improvements are needed, necessitating closer cooperation between authorities and the private sector. These enhancements are essential not only to ensure the effectiveness of the current sanctions regime but also to safeguard its credibility in the medium and long term. The complexities surrounding the export of dual-use goods are undeniable.

However, having embarked on this path, it is crucial to ensure that these measures succeed, thereby sending a clear message to others who may contemplate challenging the rules-based international order. As Ukraine faces its second winter with ongoing Russian missile and drone strikes on civilian infrastructure, foreign components continue to be discovered in the weaponry that targets cities like Kyiv daily.

In light of these challenges and observations, we urge policymakers to take decisive actions to keep export controls one step ahead of Russia’s efforts to circumvent them. These measures should address distinct challenges at various stages of the supply chain and require tailored solutions. They must strive to:

  • Close policy gaps in the existing export controls regime,
  • Strengthen government institutions responsible for implementation and enforcement,
  • Encourage and empower the private sector to enhance compliance efforts,
  • Target circumvention schemes enabling Russia to import goods via third countries
  • Enhance multilateral cooperation in the realm of export controls.

As the conflict in Ukraine persists, the world watches closely, and the effectiveness of these export controls will remain a critical factor in shaping the response to Russia’s actions and deterring future challenges to the international order.


Table of Contents

  • The Challenges and Imperatives of Export Controls in the Face of Russia’s Invasion of Ukraine
  • NATO’s Unseen Hand in Russia’s Military Might: A Deep Dive into Covert Aviation Supplies
  • Cracking the Code: Russia’s Incremental ASML Equipment Imports and the Enigma of Sanctions’ Effectiveness in Microchip Production
  • OFAC Expands Sanctions Against Hennesea Holdings and Russian Oil Price Cap Violators, Issues New General Licenses and FAQ Amendments
  • Enhancing Export Controls: A Critical Imperative as Russia’s Invasion of Ukraine Enters its Second Year”
  • Export Controls’ Impact on Russia’s Military Production and Preparations for Extended Conflict
  • The Ongoing Conflict in Ukraine: Challenges and Opportunities in Export Controls
  • How Russia Continues to Import Components for its Military Production
  • Fundamental Changes to Supply Chains: The Evolution of Battlefield Goods and Critical Components Trade with Russia
  • The Geographical Landscape of Battlefield Goods and Critical Components Producers in Supply Chains
  • The Global Manufacturing Landscape of Battlefield Goods and Critical Components in 2023
  • The Dominance of Chinese and Hong Kong-based Companies in Final Sales to Russia
  • Final Frontier: Examining the Shipment Origins of Battlefield Goods and Critical Components to Russia
  • Examining the Buyers of Battlefield Goods and Critical Components in Russia
  • Key Foreign Companies Continue to Trade with Russia: An In-Depth Analysis of Current Dynamics
  • Reassessing the Efficacy of Export Controls: A Comprehensive Analysis Post-Russia’s 2022 Invasion of Ukraine”
  • Enhancing Export Controls: A Multifaceted Strategy to Counter Russian Circumvention Tactics
  • Strengthening Global Export Controls: The Imperative of Enforcing Foreign Direct Product Rules
  • Refining Export Controls: Stringent Measures Against Russian Circumvention
  • Reinforcing Global Export Controls: Addressing Modern Challenges in Economic Statecraft8
  • Reinforcing Global Export Controls: Addressing Modern Challenges in Economic Statecraft
  • Revamping Export Controls: Integrating Financial Industry Practices and Enhancing Corporate Accountability
  • Intensifying Export Controls: Addressing Third-Country Circumvention in Global Sanctions Regime
  • Enhancing Global Export Controls: Addressing Systemic Issues and Third-Country Non-Compliance
  • Strengthening Global Security: The Imperative of Enhanced Multilateral Cooperation in Export Controls
  • The Pivotal Role of Analog Devices and Texas Instruments in Russian Military Equipment Supply Chains
  • The Crucial Role of CNC Machines in Russia’s Military Production and the Impact of Sanctions
  • Analyzing the Supply Chain Dynamics of CNC Machines in Russia
  • The Evolving CNC Machine Market and Export Controls Enforcement
  • Addressing the Challenge of Subsidiary Loopholes in Technology Export Controls: The Case of SenseTime
  • Analyzing the Impact and Implications of Microsoft’s Settlement over Export Control Violations
  • Navigating the Complexities of Multilateral Export Controls in the Modern Era: The Wassenaar Arrangement and Beyond
  • Appendix 1: Summary of Existing Export Controls Measures
  • Appendix 2: Definition of “Battlefield Goods” and “Critical Components”
  • Appendix 3 – SUMMARY OF DYNAMICS ON DIFFERENT STAGES OF THE SUPPLY CHAIN
  • Appendix 4: Subset of Companies for Analysis in Section II.4

NATO’s Unseen Hand in Russia’s Military Might: A Deep Dive into Covert Aviation Supplies

Despite international sanctions and public condemnations, a recent investigation by the Sistema investigative project has unveiled a startling contradiction in global geopolitics. Companies from NATO member countries, the very bloc standing against Russian aggression in Ukraine, have been covertly supplying Russia with essential aviation spare parts, some of which could potentially be repurposed for military use. This revelation comes amidst the backdrop of escalating tensions and tragic loss of life in the ongoing conflict.

In the waning days of 2023, just two days shy of the New Year, a grim event unfolded. The Russian army launched a massive shelling across various Ukrainian cities including Kyiv, Lvov, Kharkov, and Odessa. This brutal assault resulted in the tragic loss of 58 lives and left 158 individuals wounded. Ukrainian President Volodymyr Zelensky, in a heart-wrenching address at the time, described it as an onslaught featuring the full might of the Russian arsenal.

Central to this attack were the Russian Su-30 fighters, aircraft that have been frequently cited by Ukrainian authorities in numerous bombing reports. The Su-30s have a notorious history; in spring 2022, these aircraft were involved in the bombing of the Sumy region, resulting in the death of 21 individuals, including children. A subsequent attack in July 2022 saw a missile from a Su-30 striking a residential building in Odessa. The Su-30, a versatile multi-role fighter capable of striking both air and ground targets, is a staple in the Russian Aerospace Forces and Navy, with at least 120 units of various modifications in service. Notably, the Oryx project, which analyzes open-source information on military operations, reports the loss of 11 such aircraft by the Russian army since the onset of the full-scale invasion.

The Su-30s are produced at the Irkutsk Aircraft Plant, a branch of PJSC Yakovlev, under the umbrella of the United Aircraft Corporation (UAC) of Rostec. Rostec’s head, Sergei Chemezov, is a figure included in the EU and US sanctions lists. These sanctions, initiated in 2014 and intensified following Russia’s full-scale invasion of Ukraine in 2022, specifically targeted PJSC Yakovlev due to the use of Su-30 jets in aggressive operations.

Despite the sanctions, which formally prohibit Yakovlev from procuring parts and equipment from sanctioning countries, the company has managed to sustain its operations, albeit with challenges. The scarcity of imported components has impacted production rates, particularly for civilian aircraft like the Sukhoi Superjet-100. Yakovlev’s management has publicly announced a shift towards domestic sources for engines and spare parts in response to these challenges.

However, the reality diverges from these claims. Investigations reveal that Yakovlev continues to import spare parts from Europe and NATO countries, circumventing sanctions. This covert trade includes a diverse range of components, from transponders to wire cutters, crucial for the development and production of aircraft.

The American non-profit C4ADS, specializing in defense sector analysis, provided Sistema with customs import data for Yakovlev PJSC for 2022 and 2023. This data reveals an expenditure exceeding eight million dollars on these imports. Among these, the most significant contributors were Germany, with exports worth $4.4 million, and the American company Honeywell International, based in Germany, accounting for more than $3.9 million of supplies. These transactions occurred despite Honeywell’s public declaration of ceasing operations in Russia and Belarus following the escalation of the Ukraine conflict.

In a recent update on January 25, Honeywell responded to Sistema’s inquiries, asserting that it had ceased all transactions with PJSC Yakovlev since February 24, 2022. The company also emphasized its commitment to shutting down its operations in Russia and ensuring compliance with regulatory requirements to prevent indirect supply of its products to Russia.

This complex web of covert supplies and geopolitical maneuverings underscores a concerning dichotomy in the international stance against Russian aggression. While the front of sanctions and public condemnations remains strong, the undercurrents of international trade and corporate interests paint a different picture, one that inadvertently contributes to the very conflict these measures seek to quell. The implications of these findings are far-reaching, prompting a reevaluation of the effectiveness and integrity of international sanctions and the role of global corporations in conflicts.

Continuing with the intricate narrative of NATO countries’ clandestine dealings with Russia, we delve further into the role of the French company Thales AVS France SAS. Known for its expertise in aerospace and defense equipment, Thales has been implicated in supplying not only military-grade equipment like thermal imaging cameras for tanks, navigation systems, and infrared detectors for military aircraft, but also modules for protecting bank user data. The company’s activities came under scrutiny particularly in the summer of 2022 when it announced its withdrawal from Russia. However, this move followed a contentious spring where Thales found itself embroiled in a scandal for breaching sanctions legislation.

Despite the sanctions, Thales continued its trade with Russia into 2022 and 2023. Yakovlev’s procurement documents may have labeled these products as “not for military purposes,” but the ambiguity of such items in the context of a war-torn environment leaves room for potential misuse and could be interpreted as a breach of sanctions by Thales. The total expenditure by Yakovlev on Thales AVS France SAS’s supplies during one and a half years of intensified conflict reached approximately 783 thousand dollars.

In a peculiar twist, Yakovlev PJSC managed to import European goods explicitly marked for “military use” after the onset of the war and the implementation of sanctions. However, these imports were limited and somewhat unusual – Bosch hair dryers and Knipex wire cutters, routed through Algeria. Bosch’s response to Sistema’s queries revealed that the products shipped to Russia from Algeria were not in current production, having been discontinued before the invasion of Ukraine. Bosch stressed its commitment to adhering to export regulations and sanctions, underscoring efforts to prevent their products from being used in sanction-violating activities.

Requests for comments on these ongoing trades were sent by Sistema to Yakovlev PJSC, Thales AVS France SAS, Knipex, and the Russian Foreign Ministry, but no responses were received at the time of publication. Dmitry Peskov, Putin’s press secretary, when questioned about the continued procurement of Western equipment amid Russia’s push for import substitution, dismissed the matter as irrelevant to the presidential administration.

Former Deputy Minister of Energy of Russia, Vladimir Milov, offered a critical perspective on the situation. He suggested that European and Western businesses generally harbor no desire for sanctions against Russia, driven by a relentless pursuit of profit, even if it means exploiting legal loopholes. Milov argued that for sanctions to be effective, Europe needs more robust tools, which are currently lacking and only beginning to be discussed.

Milov warned that while businesses will invariably find and exploit these loopholes in the absence of stringent monitoring, any proven violations of the sanctions regime by Western companies could lead to severe repercussions, including hefty fines and arrests. His insights underscore the complex and often contradictory nature of international business ethics, especially in the shadow of geopolitical conflicts and economic sanctions.

Western Parts For A Russian Jet-Fighter Manufacturer

Despite Western sanctions, several European and U.S. suppliers continued to export aviation parts to Russia — mostly companies in France, Germany, and the United States.

In the wake of Russia’s full-scale invasion of Ukraine, a coalition of nations, including European Union member states, the United States, the United Kingdom, Japan, South Korea, and others, has imposed unprecedented export controls on the Russian Federation, particularly concerning dual-use goods. These measures aim to disrupt Russia’s access to critical inputs, including high-tech electronics, required for its military industry and war effort. This marks a significant test case for 21st-century export controls and technology sanctions, with lessons that extend beyond the Ukraine-Russia conflict.

Export controls, however, pose substantial enforcement challenges due to the intricate nature of global supply chains, the exclusion of major economies like China from the sanctions coalition, and limited experience and resources within coalition countries. Consequently, Russia has managed to secure substantial quantities of the materials it needs for military production. Between January and October 2023, imports of priority battlefield goods, as identified by the U.S., EU, UK, and Ukraine’s other partners, amounted to $8.77 billion, marking only a 10% decline compared to the pre-sanctions period. For items deemed critical for Russia’s military industry, this figure rose to $22.23 billion. Of particular concern is the role played by producers from coalition countries whose products, manufactured abroad, find their way to Russia due to insufficient private sector compliance efforts. Shockingly, almost half of Russia’s imports in 2023 of these crucial goods originated from producers within the coalition.

This analysis underscores that export controls face persistent challenges, including third-country circumvention schemes, but also highlights the continued involvement of producers from coalition countries in trading with Russia through third-country intermediaries. Urgent improvements are needed, necessitating closer cooperation between authorities and the private sector. These enhancements are essential not only to ensure the effectiveness of the current sanctions regime but also to safeguard its credibility in the medium and long term. The complexities surrounding the export of dual-use goods are undeniable. However, having embarked on this path, it is crucial to ensure that these measures succeed, thereby sending a clear message to others who may contemplate challenging the rules-based international order. As Ukraine faces its second winter with ongoing Russian missile and drone strikes on civilian infrastructure, foreign components continue to be discovered in the weaponry that targets cities like Kyiv daily.

In light of these challenges and observations, we urge policymakers to take decisive actions to keep export controls one step ahead of Russia’s efforts to circumvent them. These measures should address distinct challenges at various stages of the supply chain and require tailored solutions. They must strive to:

  • Close policy gaps in the existing export controls regime,
  • Strengthen government institutions responsible for implementation and enforcement,
  • Encourage and empower the private sector to enhance compliance efforts,
  • Target circumvention schemes enabling Russia to import goods via third countries
  • Enhance multilateral cooperation in the realm of export controls.

As the conflict in Ukraine persists, the world watches closely, and the effectiveness of these export controls will remain a critical factor in shaping the response to Russia’s actions and deterring future challenges to the international order.

NATO’s Unseen Hand in Russia’s Military Might: A Deep Dive into Covert Aviation Supplies

Despite international sanctions and public condemnations, a recent investigation by the Sistema investigative project has unveiled a startling contradiction in global geopolitics. Companies from NATO member countries, the very bloc standing against Russian aggression in Ukraine, have been covertly supplying Russia with essential aviation spare parts, some of which could potentially be repurposed for military use. This revelation comes amidst the backdrop of escalating tensions and tragic loss of life in the ongoing conflict.

In the waning days of 2023, just two days shy of the New Year, a grim event unfolded. The Russian army launched a massive shelling across various Ukrainian cities including Kyiv, Lvov, Kharkov, and Odessa. This brutal assault resulted in the tragic loss of 58 lives and left 158 individuals wounded. Ukrainian President Volodymyr Zelensky, in a heart-wrenching address at the time, described it as an onslaught featuring the full might of the Russian arsenal.

Central to this attack were the Russian Su-30 fighters, aircraft that have been frequently cited by Ukrainian authorities in numerous bombing reports. The Su-30s have a notorious history; in spring 2022, these aircraft were involved in the bombing of the Sumy region, resulting in the death of 21 individuals, including children. A subsequent attack in July 2022 saw a missile from a Su-30 striking a residential building in Odessa. The Su-30, a versatile multi-role fighter capable of striking both air and ground targets, is a staple in the Russian Aerospace Forces and Navy, with at least 120 units of various modifications in service. Notably, the Oryx project, which analyzes open-source information on military operations, reports the loss of 11 such aircraft by the Russian army since the onset of the full-scale invasion.

The Su-30s are produced at the Irkutsk Aircraft Plant, a branch of PJSC Yakovlev, under the umbrella of the United Aircraft Corporation (UAC) of Rostec. Rostec’s head, Sergei Chemezov, is a figure included in the EU and US sanctions lists. These sanctions, initiated in 2014 and intensified following Russia’s full-scale invasion of Ukraine in 2022, specifically targeted PJSC Yakovlev due to the use of Su-30 jets in aggressive operations.

Despite the sanctions, which formally prohibit Yakovlev from procuring parts and equipment from sanctioning countries, the company has managed to sustain its operations, albeit with challenges. The scarcity of imported components has impacted production rates, particularly for civilian aircraft like the Sukhoi Superjet-100. Yakovlev’s management has publicly announced a shift towards domestic sources for engines and spare parts in response to these challenges.

However, the reality diverges from these claims. Investigations reveal that Yakovlev continues to import spare parts from Europe and NATO countries, circumventing sanctions. This covert trade includes a diverse range of components, from transponders to wire cutters, crucial for the development and production of aircraft.

The American non-profit C4ADS, specializing in defense sector analysis, provided Sistema with customs import data for Yakovlev PJSC for 2022 and 2023. This data reveals an expenditure exceeding eight million dollars on these imports. Among these, the most significant contributors were Germany, with exports worth $4.4 million, and the American company Honeywell International, based in Germany, accounting for more than $3.9 million of supplies. These transactions occurred despite Honeywell’s public declaration of ceasing operations in Russia and Belarus following the escalation of the Ukraine conflict.

In a recent update on January 25, Honeywell responded to Sistema’s inquiries, asserting that it had ceased all transactions with PJSC Yakovlev since February 24, 2022. The company also emphasized its commitment to shutting down its operations in Russia and ensuring compliance with regulatory requirements to prevent indirect supply of its products to Russia.

This complex web of covert supplies and geopolitical maneuverings underscores a concerning dichotomy in the international stance against Russian aggression. While the front of sanctions and public condemnations remains strong, the undercurrents of international trade and corporate interests paint a different picture, one that inadvertently contributes to the very conflict these measures seek to quell. The implications of these findings are far-reaching, prompting a reevaluation of the effectiveness and integrity of international sanctions and the role of global corporations in conflicts.

Continuing with the intricate narrative of NATO countries’ clandestine dealings with Russia, we delve further into the role of the French company Thales AVS France SAS. Known for its expertise in aerospace and defense equipment, Thales has been implicated in supplying not only military-grade equipment like thermal imaging cameras for tanks, navigation systems, and infrared detectors for military aircraft, but also modules for protecting bank user data. The company’s activities came under scrutiny particularly in the summer of 2022 when it announced its withdrawal from Russia. However, this move followed a contentious spring where Thales found itself embroiled in a scandal for breaching sanctions legislation.

Despite the sanctions, Thales continued its trade with Russia into 2022 and 2023. Yakovlev’s procurement documents may have labeled these products as “not for military purposes,” but the ambiguity of such items in the context of a war-torn environment leaves room for potential misuse and could be interpreted as a breach of sanctions by Thales. The total expenditure by Yakovlev on Thales AVS France SAS’s supplies during one and a half years of intensified conflict reached approximately 783 thousand dollars.

In a peculiar twist, Yakovlev PJSC managed to import European goods explicitly marked for “military use” after the onset of the war and the implementation of sanctions. However, these imports were limited and somewhat unusual – Bosch hair dryers and Knipex wire cutters, routed through Algeria. Bosch’s response to Sistema’s queries revealed that the products shipped to Russia from Algeria were not in current production, having been discontinued before the invasion of Ukraine. Bosch stressed its commitment to adhering to export regulations and sanctions, underscoring efforts to prevent their products from being used in sanction-violating activities.

Requests for comments on these ongoing trades were sent by Sistema to Yakovlev PJSC, Thales AVS France SAS, Knipex, and the Russian Foreign Ministry, but no responses were received at the time of publication. Dmitry Peskov, Putin’s press secretary, when questioned about the continued procurement of Western equipment amid Russia’s push for import substitution, dismissed the matter as irrelevant to the presidential administration.

Former Deputy Minister of Energy of Russia, Vladimir Milov, offered a critical perspective on the situation. He suggested that European and Western businesses generally harbor no desire for sanctions against Russia, driven by a relentless pursuit of profit, even if it means exploiting legal loopholes. Milov argued that for sanctions to be effective, Europe needs more robust tools, which are currently lacking and only beginning to be discussed.

Milov warned that while businesses will invariably find and exploit these loopholes in the absence of stringent monitoring, any proven violations of the sanctions regime by Western companies could lead to severe repercussions, including hefty fines and arrests. His insights underscore the complex and often contradictory nature of international business ethics, especially in the shadow of geopolitical conflicts and economic sanctions.

Western Parts For A Russian Jet-Fighter Manufacturer

Despite Western sanctions, several European and U.S. suppliers continued to export aviation parts to Russia — mostly companies in France, Germany, and the United States.

Cracking the Code: Russia’s Incremental ASML Equipment Imports and the Enigma of Sanctions’ Effectiveness in Microchip Production

In recent years, Russia has embarked on a concerted effort to substitute Western electronics and industrial equipment with alternatives sourced from China or domestically produced. Despite these endeavors, official data suggests that this initiative has been less successful than anticipated. Over the past two years, the Kremlin’s attempt to wean itself off Western technology has fallen short, with approximately half of the components imported for weapon production still originating from Western companies.

This situation underscores a significant challenge facing Russia’s industrial and technological sectors. The country’s dependence on Western technology, especially in critical areas like semiconductor manufacturing, remains a vulnerability. Despite sanctions and the push for self-reliance, Russia’s tech industry still leans heavily on Western imports, either directly or through complex networks of intermediaries and second-hand markets.

Intriguingly, Russia has demonstrated a unique aptitude in devising methods to circumvent sanctions. Research by the Kyiv School of Economics (KSE) and the Yermak-McFaul Expert Group on Russian Sanctions indicates a mere 9% decrease in Russia’s import of military components since February 2022. This suggests a resilience in sustaining its military-industrial complex despite international sanctions.

The case of ASML, a Dutch multinational in semiconductor manufacturing, exemplifies Russia’s challenges and strategies. ASML’s advanced photolithography systems are crucial for modern chip production. However, Russia has been barred from purchasing these systems since 2014. This blockade forced Russia to invest in developing its own semiconductor manufacturing capabilities. The Kremlin’s allocation of approximately RUB 100 billion (around US$1.1 billion) from 2023 to 2025 for this purpose is a significant step, albeit one that pales in comparison to ASML’s own development budget.

Russia’s endeavor in this field, however, faces technological lag. It is projected that by 2024, Russia will have only achieved the technology of 1996 in chip manufacturing, which is far behind the current global standard. Despite this, Russia continues to manufacture higher-grade microchips using imported, often second-hand, equipment from China and the Netherlands. This includes machines capable of producing 90-nanometre chips, aligning with early 2000s technology levels.

Investigations have unveiled Russia’s adeptness in evading sanctions through a web of import companies. A glaring example of this stratagem occurred when Western sanctions were imposed on AK Microtech LLC, a firm previously responsible for importing ASML equipment. In response, another entity, Krafttek LLC, swiftly assumed the role, signifying the intricate challenges in enforcing sanctions effectively. Just a few months later, Krafttek LLC recommenced ASML equipment imports, raising further concerns. EP’s findings disclosed that this Russian firm has been consistently submitting import declarations for ASML equipment since August 2023. Impressively, it has declared imports of 16 distinct ASML equipment types, amounting to a substantial US$1.8 million in value. This resolute persistence underscores the formidable obstacles sanctions face in thwarting Russia’s ambitions in microchip production.

The imports of ASML equipment, crucial for Russia’s semiconductor industry, include essential parts like water purification equipment and control units. These imports, although fragmented, contribute significantly to sustaining and expanding Russia’s microchip production capabilities. Despite sanctions, open registers and media reports confirm the continued use of ASML equipment, particularly the PAS-5500 models, in Russian facilities.

The broader picture of Russia’s import practices shows a heavy reliance on Western technology, not entirely supplanted by Chinese alternatives. This includes components from prominent European manufacturers like Siemens, Radiall, and Schneider Electric. The persistence of this dependence illustrates the limitations of current sanctions and the need for a more comprehensive and synchronized approach by Western countries.

Analyzing the impact of sanctions, a recent report by the KSE and the Yermak-McFaul Group highlights Russia’s continued import of military components and dual-use goods. Despite a reduction in imports, the volume remains significant, with a considerable proportion originating from Western brands. This situation underscores the need for a more nuanced and stringent application of technological sanctions.

OFAC Expands Sanctions Against Hennesea Holdings and Russian Oil Price Cap Violators, Issues New General Licenses and FAQ Amendments

In recent years, the United States has significantly ramped up its use of sanctions and export controls as pivotal tools in its foreign policy and economic arsenal. These measures have evolved rapidly, becoming more sophisticated and targeted, with a direct impact on global markets and the behavior of market participants. In the context of U.S.-Russia relations, understanding these sanctions and export controls is crucial for financial institutions, manufacturers, and businesses engaged in or considering cross-border transactions, as well as domestic dealings involving foreign entities.

The Evolution of U.S. Sanctions and Export Controls

Initially designed as diplomatic tools to exert pressure without resorting to military action, U.S. sanctions have evolved into more complex instruments. They now aim not only to influence state actors but also to target specific industries, companies, and individuals. The U.S. has expanded the scope of its sanctions against Russia, primarily in response to geopolitical conflicts and cyber-related offenses. These sanctions now encompass a wide array of measures, including asset freezes, trade restrictions, and bans on doing business with designated individuals and entities.

Export controls have also been refined. The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) plays a key role in regulating the export of sensitive goods, technology, and software. These controls are aimed at preventing the proliferation of weapons of mass destruction, thwarting terrorist activities, and protecting U.S. national security interests.

Impact on Financial Institutions and Businesses

For financial institutions, the expanded sanctions regime necessitates a more rigorous compliance framework. Banks and other financial entities must screen transactions and partnerships against sanction lists, ensuring they do not inadvertently facilitate prohibited activities. This requires robust due diligence processes and ongoing monitoring, given the dynamic nature of sanction lists.

Manufacturers and companies involved in cross-border trade must navigate a complex landscape of export controls. Compliance with these regulations is crucial to avoid penalties, which can include hefty fines and restrictions on future trading activities. The export of certain technologies, particularly those with potential military applications, is subject to strict licensing requirements.

Implications for Cross-Border and Domestic Transactions

Companies contemplating cross-border transactions or those involving foreign entities need to be acutely aware of the implications of U.S. sanctions and export controls. Transactions with entities in Russia, for instance, may be subject to specific restrictions or require licenses. The due diligence process must be thorough, assessing not only the direct parties involved in a transaction but also their broader networks and activities.

Domestic transactions involving foreign persons or entities also fall under the purview of these regulations. U.S. companies must ensure that their domestic operations do not inadvertently violate sanctions or export control regulations, particularly when dealing with foreign-owned or affiliated companies.

Example – January 2024 – SDN Designation

The Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury made a significant move on January 18, 2024, by designating Hennesea Holdings Limited, a shipping company based in the United Arab Emirates, and its various subsidiaries, as well as 18 vessels owned by Hennesea, to the Specially Designated Nationals (SDN) List. This action comes in the wake of allegations that Hennesea facilitated the transport of Russian crude oil at prices exceeding the $60 per barrel cap, utilizing services of a U.S.-based provider.

Founded in late 2022, Hennesea’s strategy has been under scrutiny, especially its acquisition of older tankers tasked with transporting Russian crude oil and petroleum products. These tankers, ultimately under Hennesea’s ownership, have been noted for their frequent port calls in the Russian Federation, an activity drawing OFAC’s attention amidst stringent sanctions.

This recent sanction is part of a series of steps taken by OFAC against entities violating the Russian oil price cap. These steps can be traced back through a sequence of actions, starting from the October 31, 2023 QuickStudy, which outlined the Russian Oil Price Cap Advisory and Violation & Issuance of Russia-Related General License, followed by subsequent updates on November 20, 2023, and December 11, 2023. The most recent action prior to this was the January 9, 2024 QuickStudy, targeting maritime companies and vessels for contravening the Russian Oil Price Cap.

The implications of these designations are extensive. All properties and interests in properties of these Blocked Persons, located within the United States or under the control of U.S. persons, are frozen and must be reported to OFAC. Moreover, any transactions involving these entities, whether within, transiting, or in any way related to the U.S., are prohibited unless specifically authorized by OFAC or exempted by law.

OFAC has signaled its intent to persistently pursue violators of the oil price cap, particularly those leveraging products from the Oil Price Cap Coalition, including insurance.

General Licenses (GLs)

In conjunction with these designations, OFAC issued General License 13H, replacing the former GL 13G. This license, valid through April 17, 2024, authorizes U.S. persons to engage in transactions necessary for the payment of taxes, fees, import duties, and the acquisition of permits, licenses, registrations, certifications, or tax refunds in Russia. These transactions are permissible as long as they are ordinarily incidental and necessary to day-to-day operations in Russia, under the constraints of Directive 4 of Executive Order 14024. Directive 4 primarily prohibits transactions involving key Russian financial institutions. Notably, the previous GL 13G, set to expire on January 31, 2024, restricted U.S. persons from paying Russian “Exit Taxes.”

Additionally, OFAC introduced GL 86, extending to April 17, 2024. This license authorizes transactions critical for the secure docking, anchoring, and emergency repairs of vessels owned by Blocked Persons, ensuring the safety of their crews, and carrying out environmental mitigation or protection activities related to these vessels. However, any payments made to Blocked Vessels or Blocked Persons must be deposited into a blocked account.

FAQs

OFAC also amended FAQ 1157, expanding the list of seafood products, specifically “salmon,” “cod,” “pollack,” and “crab,” prohibited from importation into the U.S. under the Harmonized Tariff Schedule of the United States. This amendment is in line with the executive order EO 14068, which outlines prohibitions related to the importation of certain categories of fish, seafood, and their preparations.

These comprehensive actions by OFAC reflect a steadfast approach to enforcing sanctions and maintaining strict controls over transactions and trade activities linked to designated entities, particularly in the context of the ongoing geopolitical situation involving Russia.

Enhancing Export Controls: A Critical Imperative as Russia’s Invasion of Ukraine Enters its Second Year”

As Russia’s brutal full-scale invasion of Ukraine approaches its second anniversary, the people of Ukraine, both civilians and soldiers, continue to endure the harrowing realities of war and occupation. In response to Russia’s aggression, a coalition of nations imposed unprecedented export controls aimed at severely limiting Russia’s access to foreign components essential for the production of advanced weapons systems. However, the persistent offensive operations by the Russian military, coupled with a second winter of relentless missile and drone strikes on civilian infrastructure, underscore the critical role of foreign components in sustaining this aggression. Ukraine’s National Agency for Corruption Prevention (NACP) has painstakingly documented nearly 2,800 individual parts found in Russian weaponry on the battlefield, including missiles, drones, armored vehicles, and various systems, with detailed information on the companies responsible for their production.

Russia’s continued reliance on foreign components for its military production is strikingly evident, with a staggering 95% of all parts found in Russian weapons on the battlefield originating from producers in coalition countries. Astonishingly, 72% of these components can be traced back to U.S.-based companies alone. This data highlights the ongoing challenge Russia faces in finding viable substitutes from its domestic market or its allies, with components from China accounting for only 4% of the approximately 2,800 items identified. Consequently, export controls remain a potent tool for constraining Russia’s war effort. However, their enforcement appears to be insufficient, necessitating immediate steps to enhance their effectiveness.

Interestingly, despite the export controls, Russia’s capacity to manufacture missiles and drones appears to have increased significantly in 2023. Data from the Ukrainian military demonstrates the surge in drone attacks throughout the year, attributed to Russia’s ability to localize the production of Iranian Shahed drones. According to Ukrainian government estimates, missile production capacities have also expanded, increasing from approximately 50 units per month in 2022 to around 100 in mid-2023 and reaching approximately 115 by the end of the same year. The dramatic escalation in missile strikes in December can be attributed to Russia’s well-known strategy of stockpiling weaponry for attacks on civilian infrastructure during the winter months.

While Ukraine has achieved a degree of success in intercepting drones and missiles, with 83.8% and 70.3% being shot down, respectively, this places a significant strain on the country’s air defenses. Paradoxically, it creates a challenging scenario where Ukraine’s allies are compelled to provide increased military assistance to Ukraine to defend against weapons that Russia can only produce because of its continued access to imported components originating from Ukraine’s allies.

As the conflict in Ukraine enters its second year, the imperative to enhance export controls has never been more apparent. The stark reality of continued violence and destruction underscores the urgency of implementing measures to strengthen export controls, close enforcement gaps, and curtail Russia’s ability to procure foreign components for its military production. Failure to address these issues not only undermines the effectiveness of sanctions but also perpetuates a cycle of violence and instability in Ukraine and threatens the broader international order. The need for decisive action and international cooperation to address these challenges cannot be overstated.

Source: NACP

Export Controls’ Impact on Russia’s Military Production and Preparations for Extended Conflict

Despite the anticipation that sanctions on dual-use goods, initially imposed in response to the annexation of Crimea in 2014 and subsequently tightened following the commencement of Russia’s full-scale invasion of Ukraine, would reduce the sophistication of Russia’s military equipment, observations from Ukrainian experts engaged in the dismantling of weapons from the battlefield suggest a different reality. Surprisingly, there is no discernible evidence of a substantial substitution of advanced components from coalition countries with Russian or Chinese parts, which are presumed to be less advanced. Instead, these experts’ insights indicate that changes primarily pertain to modernization efforts and the incorporation of new features, rather than a fundamental shift in suppliers. This suggests that export controls have the potential to significantly curtail Russia’s military production and its ability to wage war on Ukraine effectively.

Moreover, investigations unveil that Russia is actively enhancing its military capabilities in preparation for an extended conflict. Satellite imagery has revealed the construction of new facilities dedicated to aircraft repair, missile production, drone assembly, and other military purposes. For example, aircraft plants in Kazan and Irkutsk have witnessed expansion in recent months, with a particular focus on Su-30 fighter jets—a crucial aircraft type within the Russian air force. Additionally, the Dubna machine building plant has undergone construction, alongside a facility in Kronstad, playing a pivotal role in missile production on behalf of the state-owned Tactical Missile Arms Cooperation. Notably, a significant portion of these construction projects commenced between 2018 and 2021, but a noticeable acceleration in building activities occurred after the February 2022 invasion.

These developments underscore the persistence and adaptability of Russia’s military-industrial complex, even in the face of stringent export controls and economic sanctions. While export controls have not caused a dramatic shift in Russia’s sourcing of components, they have played a role in constraining its military production capabilities. However, as Russia continues to invest in modernizing its military infrastructure and expanding its production facilities, it becomes evident that export controls alone may not suffice to curb its military ambitions in the long run.

As the conflict in Ukraine persists, policymakers must remain vigilant and proactive in refining and reinforcing export control measures. These measures should be dynamic, addressing the evolving strategies and capabilities of Russia’s military-industrial complex. Additionally, international cooperation and intelligence-sharing among coalition countries are crucial in countering Russia’s ability to circumvent export controls and sustain its military production.

The Ongoing Conflict in Ukraine: Challenges and Opportunities in Export Controls

As Russia’s invasion of Ukraine approaches its second anniversary, the strategic commitment to reinforce military infrastructure through extensive construction efforts reveals a long-term perspective on the conflict. This expansion has contributed to a formidable situation on the battlefield, granting Russia the capacity to execute large-scale operations while effectively halting any counteroffensive by Ukraine (see Figure 3). Simultaneously, a global artillery shell deficit has compelled both sides to adapt their strategies, with a notable rise in the use of First Person View (FPV) drones as an alternative to conventional weaponry. Both Ukraine and Russia are compelled to establish new production capacities, reflecting the evolving nature of warfare and the likelihood of increased reliance on foreign components in the future.

Amidst these concerning developments, it is essential to acknowledge some positive trends that have emerged. First, issues within Russia’s civil aviation sector have highlighted supply chain challenges, mirroring potential constraints in the realm of military aviation. Second, Russia is facing unparalleled losses across all categories of its military equipment. Even in the hypothetical scenario of an immediate cessation of military activities, it would take Russia more than one year to restore missile capabilities and considerably longer to replace the destroyed armored vehicles. These setbacks underscore the magnitude of Russia’s challenges and the substantial time and resources required for the post-war rebuilding of its military.

Furthermore, Ukrainian intelligence services have observed a noticeable slowdown in the Russian military industry, echoing President Zelensky’s remarks in his December 21, 2023, address. While specific details about these developments remain undisclosed, this aligns with findings regarding growing supply chain disruptions concerning foreign inputs. The course of the war may be determined in 2024. While Ukraine will continue to rely on financial and military support from its allies to defeat Russian aggression, it is imperative that coalition countries enhance the impact of export controls.

The trade in export-controlled goods persists despite significant media attention focusing on instances of foreign companies’ components discovered in Russian weapons and the circumvention schemes enabling Russia to acquire critical inputs for its military industry. The stakes extend beyond the freedom and security of the Ukrainian people; they encompass the credibility of the sanctions regime. Export controls, rightly considered the new frontier in economic statecraft, risk losing their effectiveness in the absence of robust enforcement. Ukraine’s allies must prioritize efforts to constrain Russia, ensuring that the country possesses the technological superiority required to prevail in the ongoing conflict.

Source: NACP

How Russia Continues to Import Components for its Military Production

“Battlefield Goods” vs. “Critical Components” In our analysis, we distinguish between two distinct categories of goods crucial for Russia’s military industry and war efforts:

(1) “Battlefield Goods”: The European Union, United States, United Kingdom, and other coalition countries have jointly identified a list of 45 six-digit Harmonized System (HS) codes that they consider of paramount importance for export controls enforcement. These are commonly referred to as “common high-priority items” or “battlefield goods.”

(2) “Critical Components”: In our analysis, we define “critical components” by excluding some battlefield goods that are predominantly used for civilian purposes, such as smartphones. Conversely, we include additional items in this category where we believe a broader focus is warranted. This expanded definition results in a list of 485 HS codes, providing a more detailed examination of essential components for Russia’s military production.

Our comprehensive analysis of trade flows relies on a transaction-level dataset of Russian imports, aiming to offer an in-depth understanding of supply chains.

Rebound in Imports of Foreign Components Russian imports of battlefield goods have demonstrated a significant recovery following a sharp decline in the wake of the imposition of export controls, while those of critical components have lagged behind. For both categories of goods, we observe a distinct impact of export controls around mid-2022.

In the case of battlefield goods, Russia appears to have successfully reconfigured supply chains. Monthly average imports reached $932 million in 2023, marking only a 10.0% decrease compared to the pre-sanctions period. This resilience in import volumes suggests that Russia has adapted to the challenges posed by export controls for certain goods.

Conversely, the situation differs notably for the broader category of critical components. Here, monthly average imports in 2023 amounted to $2.29 billion, representing a more substantial decline of 28.8% compared to the period before February 2022. Export controls have thus exhibited more pronounced effects on this category, contributing to a notable reduction in critical component imports.

These findings emphasize the adaptability and resilience of Russia’s supply chains in response to export controls. While they have been successful in mitigating the impact on battlefield goods, the constraints on critical components have been more pronounced. This underscores the complexity of enforcing export controls on a diverse range of goods and highlights the need for continued vigilance and refinement of these measures to curtail Russia’s military production effectively.

  • Prior to the full-scale invasion of Ukraine, spanning from January 2021 to February 2022, Russia consistently imported an average of $1.04 billion worth of battlefield goods and $3.21 billion in critical components each month. These figures notably surged in the fourth quarter of 2021, with imports averaging $1.59 billion for battlefield goods and $4.31 billion for critical components per month. This increase reflected Russia’s preparations for the impending conflict, anticipating the imposition of export controls.
  • Following the implementation of sanctions in response to the invasion, Russian imports of both battlefield goods and critical components experienced a sharp decline from March to July 2022. Imports of battlefield goods averaged $565 million per month during this period, representing a 45.5% decrease compared to the pre-sanctions period. Similarly, critical component imports averaged $1.69 billion per month, marking a substantial 47.4% decrease.
  • In the latter half of 2022, trade in these goods began to rebound as Russia adapted its supply chains to circumvent the export controls. From August to December 2022, imports of battlefield goods increased to an average of $1.04 billion per month, demonstrating an impressive 84.1% rise compared to the preceding March to July period. Simultaneously, imports of critical components also rebounded, reaching an average of $2.41 billion per month, indicating a substantial 42.8% increase.
  • Notably, in the first ten months of 2023, imports of battlefield goods came close to their pre-sanctions levels, amounting to an average of $932 million per month. This represented a minimal decline of only 10.0% when compared to the period before the imposition of export controls. However, the dynamics for critical components have been notably different. Monthly average imports in 2023 for these components stood at $2.29 billion, signifying a more significant decline of 28.8%.

These trends highlight Russia’s resilience in adapting its supply chains and overcoming the initial impact of export controls. While battlefield goods have nearly returned to pre-sanctions levels, critical components have experienced a more substantial decline in imports. This underscores the challenges in enforcing export controls comprehensively and the need for continued vigilance and refinement of these measures to effectively constrain Russia’s military production.

In the period spanning from January to October 2023, Russia’s import figures for battlefield goods totaled $8.77 billion, while imports of critical components reached a substantial $22.23 billion. Regardless of the specific degree of recovery, it is evident that Russia continues to amass significant quantities of goods deemed crucial for its military industry. These figures underscore the formidable challenges facing export controls enforcement and necessitate a closer examination of the composition of these imports.

Battlefield Goods: Within the category of battlefield goods, four distinct categories of goods stand out as dominant in terms of import values during January to October 2023:

  • Communications Equipment: Imports in this category amounted to $2.76 billion, representing a significant 31.4% of the total.
  • Semiconductors: These critical components accounted for $2.06 billion in imports, comprising 23.5% of the total.
  • Other Electronics: Imports of other electronic components reached $1.78 billion, making up 20.3% of the total.
  • Computer Parts: This category accounted for $1.37 billion in imports, contributing 15.6% to the overall total.

Critical Components: Within the category of critical components, seven specific categories deserve particular attention due to their substantial import values from January to October 2023:

  • Automotive Parts: Imports in this category amounted to a substantial $5.63 billion, constituting a significant 25.3% of the total.
    • Other Electronics: Similar to battlefield goods, other electronic components were substantial, reaching $5.37 billion in imports, making up 24.2% of the total.
    • Communications Equipment: In this category, Russia imported $3.38 billion worth of components, contributing 15.2% to the overall total.
    • Computer Parts: Imports of computer components amounted to $2.94 billion, making up 13.2% of the total.
    • Semiconductors: These essential components accounted for $2.21 billion in imports, representing 9.9% of the total.
    • Bearings and Transmission Shafts: Imports in this category totaled $1.33 billion, contributing 6.0% to the overall critical component imports.
    • Navigation Equipment: Russia imported $1.01 billion worth of navigation equipment, comprising 4.6% of the total critical component imports.

These insights provide a comprehensive picture of Russia’s imports in these critical categories, emphasizing the key components that continue to be acquired despite export controls. The dominance of specific categories within battlefield goods and critical components underscores the need for precise targeting and enhanced enforcement strategies to effectively restrict Russia’s access to goods vital for its military industry.

Fundamental Changes to Supply Chains: The Evolution of Battlefield Goods and Critical Components Trade with Russia

In recent years, the dynamics of supply chains for battlefield goods and critical components have undergone substantial transformations. These changes have been influenced primarily by the imposition of export controls, leading to fundamental realignments in global supply chains concerning crucial inputs for Russia’s military industry. While export controls have played a significant role, third-country intermediaries, notably China, Turkey, and the United Arab Emirates, have become key players in the distribution of these vital supplies to Russia. This article delves into the intricate details of these developments, highlighting their implications and challenges.

The Dominance of Third-Country Intermediaries

One of the most noteworthy observations from the analysis is the dominance of third-country intermediaries in facilitating the sale and shipment of battlefield goods and critical components to Russia. The direct sales and shipments from countries within the export controls coalition have been largely replaced by transactions that involve intermediaries from these third countries. This shift is particularly evident in both the trade of battlefield goods and critical components. While this trend was anticipated due to the imposition of export controls by many key production countries, it presents a significant enforcement challenge. The monitoring of these transactions has become substantially more complex for the enforcement agencies of coalition countries, including their customs services.

The Need for Comprehensive Mapping

Understanding how Russia continues to import substantial quantities of critical items for its operations in Ukraine is essential for both private sector compliance efforts and the improvement of export controls enforcement. A comprehensive mapping of trade flows and identification of patterns, such as the jurisdictions through which shipments are routed and the locations of intermediaries, are crucial steps. This not only aids private entities in complying with regulations but also empowers enforcement agencies in monitoring, prosecuting violations, and enhancing the effectiveness of the export controls regime.

Untangling Complex Supply Chains

To gain a holistic perspective on Russia’s capacity to import battlefield goods and critical components, it is necessary to examine transactions along multiple dimensions. These dimensions include:

  • The country where the ultimately responsible producer of the goods is headquartered (“country of producer”).
    • The jurisdiction in which the item was manufactured (“country of origin”).
    • The entity responsible for the final sale to Russia and its location (“country of seller”).
    • The jurisdiction from which the item was shipped to Russia (“country of dispatch”).
    • The ultimate buyer of the goods in Russia.

Figure 6 visually illustrates how battlefield goods reached Russia between January and October 2023, providing a comprehensive view of these complex supply chains.

Figure 6: Mapping of Russian imports of battlefield goods in January-October 2023

Percentages in this chart differ from the ones reported in the remainder of this chapter, as well as in Appendix 3, since only transactions with data for all stages of the supply chain are included here. – Source KSE

The Continued Role of Coalition Countries

Despite the rise of third-country intermediaries, companies from countries within the export controls coalition continue to play a pivotal role in these supply chains. In the first ten months of 2023, countries that had imposed export controls on Russia were still involved in approximately 48.5% of all imports of battlefield goods, serving as the location of the producer’s headquarters, production facility, final seller to Russia, or dispatcher. This observation underscores two critical facts: (1) violations of sanctions are likely widespread and systematic, and (2) export controls remain an exceptionally potent tool in limiting Russia’s capacity to wage its ongoing conflict in Ukraine.

The transformation of supply chains for battlefield goods and critical components destined for Russia has presented a complex and evolving landscape. While export controls have led to significant realignments, the involvement of third-country intermediaries poses enforcement challenges.

A comprehensive understanding of these supply chains, along with rigorous mapping and monitoring efforts, is essential for both private sector compliance and the continued effectiveness of export controls. As companies and enforcement agencies adapt to these changes, it is evident that export controls remain a critical tool in shaping Russia’s military capabilities in the global arena. For more detailed information on the countries involved at different stages of the supply chain, please refer to Appendix 3.

The Geographical Landscape of Battlefield Goods and Critical Components Producers in Supply Chains

The landscape of global supply chains for battlefield goods and critical components has undergone significant shifts, particularly in the context of export controls imposed on Russia. As we examine the data from January to October 2023, it becomes evident that the geographical location of producers plays a pivotal role in these transformations, with coalition countries featuring prominently in this intricate web of trade.

Coalition Countries: The Dominant Producers Producers headquartered in coalition countries, which have imposed export controls on Russia, have maintained a substantial presence in the supply chains. In the period under review, they were responsible for a significant portion of both battlefield goods and critical components. Specifically, at least 43.9% of battlefield goods and 32.8% of critical components can be attributed to these coalition countries.

Within the supply chains, coalition countries emerge as the predominant players, particularly concerning the ultimately-responsible producers. The United States stands out as the leader among these nations, accounting for a substantial share of both battlefield goods and critical components. To be precise, entities headquartered in the United States alone were responsible for 25.5% of battlefield goods and 15.1% of critical components during the first ten months of 2023.

Following the United States, the European Union and Taiwan also hold significant positions in this supply chain landscape. These regions have contributed considerably to the availability of battlefield goods and critical components for Russia.

Major International Technology Companies: A Closer Look Delving deeper into the specifics of these supply chains, we find that numerous major international technology companies headquartered in the export controls coalition countries continue to engage in trade with Russia, albeit through third-country intermediaries. This practice is especially noteworthy for several key players in the technology sector.

Among these companies, Intel (U.S.) is a prominent figure, maintaining its involvement in trading with Russia. Alongside Intel, other significant technology giants, such as Analog Devices (U.S.), AMD (U.S.), Texas Instruments (U.S.), and IBM (U.S.), are also part of this trade network. These companies play a crucial role in ensuring the flow of battlefield goods and critical components to Russia, even amidst export controls.

Broadening the scope to include additional critical components, we find that the top-list of companies involved expands to include names like Samsung and Hyundai, both hailing from South Korea. These companies contribute to Russia’s access to a broader range of critical components, further highlighting the complexity of the supply chain.

China’s Role as an Outsider Outside of the coalition countries, China emerges as a significant player in Russia’s continued access to battlefield goods and critical components. Chinese producers, including well-known names such as Huawei and Lenovo, have taken on a substantial role in facilitating the supply of these goods to Russia. Their involvement underscores the global nature of these supply chains and the interconnectedness of producers across borders.

Figure : Imports in January-October 2023 by country of producer

Data Source: KSE

Figure : Imports in January-October 2023 by producer (top-15), in $ million

Source: KSE – *green = companies whose components have been found on the battlefield

The Global Manufacturing Landscape of Battlefield Goods and Critical Components in 2023

In the complex world of global supply chains, understanding where battlefield goods and critical components are manufactured is a critical piece of the puzzle. Examining data from January to October 2023, this article sheds light on the geographical origins of these crucial items and the role that export controls coalition countries play in their production.

Manufacturing Origins: Coalition Countries and Beyond

The manufacturing landscape of battlefield goods and critical components reveals intriguing insights. During the first ten months of 2023, 20.9% of battlefield goods and 27.2% of critical components were produced within the export controls coalition countries, which have imposed export controls on Russia. While the role of these coalition countries as countries of origin is less pronounced than their role as the headquarters of ultimately-responsible producers, it remains notably substantial.

Among the coalition countries, particular attention is warranted for the European Union, Japan, South Korea, Taiwan, and the United States, all of which contribute significantly to the production of these items. However, their contributions are overshadowed by the manufacturing prowess of China, which stands out as the single most dominant producer. China alone accounts for a staggering 63.1% of battlefield goods and 58.7% of critical components production.

Third-Country Production for Coalition Entities

A noteworthy aspect of the manufacturing landscape is the substantial share of Russian imports that are produced in third countries on behalf of entities from sanctions coalition countries. In January to October 2023, this category accounted for 26.8% ($2.02 billion) of battlefield goods imports. Of these products, roughly two-thirds are manufactured in China, reinforcing China’s pivotal role in the supply chain.

Steady Manufacturing Patterns

In contrast to the significant shifts observed in other stages of the supply chain, changes in manufacturing locations are relatively less dramatic. Producers based in the European Union and the United States have historically relied on production facilities abroad, a practice that predates the initiation of Russia sanctions. This established pattern has contributed to the stability of the manufacturing stage within the supply chain.

The geographical origins of battlefield goods and critical components in supply chains offer valuable insights into the intricate dynamics of global trade, especially in the context of export controls. While coalition countries contribute significantly to the production of these items, the manufacturing prowess of China stands as a dominant force. Moreover, the prevalence of third-country production for coalition entities highlights the interconnectedness of the global supply chain.

As supply chains continue to evolve and adapt to changing geopolitical realities, it is imperative for stakeholders, enforcement agencies, and policymakers to remain vigilant and informed. Understanding the origins of these crucial items is key to shaping effective export controls policies and ensuring international compliance. In a world where the sourcing of battlefield goods and critical components is integral to geopolitical strategies, staying updated on these developments is paramount.

Figure : Imports in January-October 2023 by country of seller

Source: KSE

Figure : Dynamics of imports by country of seller, in $ million

Figure : Imports in January-October 2023 by seller (top-15), in $ million

Source: KSE  *dark blue = sanctioned by the United States

The Dominance of Chinese and Hong Kong-based Companies in Final Sales to Russia

In the intricate web of global supply chains, the final sales stage plays a pivotal role in determining the accessibility of battlefield goods and critical components to Russia. Examining data from January to October 2023, we uncover a picture dominated by Chinese and Hong Kong-based companies, along with a fascinating level of diversification and fragmentation in this segment of the supply chain.

Chinese and Hong Kong Dominance Notably, Chinese and Hong Kong-based companies emerge as the dominant players in the final sales stage to Russia. This segment, characterized by its diversity and fragmentation, features a multitude of entities, with no single entity holding an overwhelming share of the total trade. However, there are still notable companies that play an outsized role and warrant specific attention.

Outsized Players in a Fragmented Landscape Within this diverse landscape, there are several companies that stand out due to their significant contributions to the trade of battlefield goods and critical components to Russia. These entities, while spread across various regions, deserve particular scrutiny for their role in shaping the final sales stage.

Chinese entities, unsurprisingly, occupy a substantial portion of the top-seller list. Their presence underscores China’s central role in facilitating the supply of these critical items to Russia. These companies represent a wide array of industries and sectors, reflecting the multifaceted nature of the final sales stage in these supply chains.

Coalition Country Headquartered Companies One intriguing aspect of the final sales stage is the presence of companies headquartered in coalition countries. Despite the imposition of export controls by these countries, some entities continue to engage in trade with Russia, often through third-country intermediaries.

Several such companies have carved a niche in this market, including Intertech Services (Switzerland), Telperien (Lithuania), MR Global (Switzerland), D-Link (Taiwan), and Mykines (United Kingdom). Their inclusion in the list of top sellers highlights the complexities of international trade, where geopolitical considerations sometimes intersect with economic imperatives.

Final Frontier: Examining the Shipment Origins of Battlefield Goods and Critical Components to Russia

As we navigate the intricate web of global supply chains, the final leg of the journey – the shipment of battlefield goods and critical components to Russia – unveils an intriguing narrative. Drawing insights from data spanning January to October 2023, we delve into the origins of these crucial shipments, exploring the role played by coalition countries, export controls jurisdictions, and other key players.

The Underwhelming Role of Coalition Countries In the context of the final shipment stage, coalition countries, which have imposed export controls on Russia, play a rather modest role. A mere 4.8% of battlefield goods and 12.9% of critical components shipped to Russia during the aforementioned period originate from these jurisdictions. This limited contribution is not entirely surprising, given that shipping these items directly from coalition countries could potentially expose the trades to scrutiny and intervention by authorities, particularly customs services.

Enforcement Challenges and Loopholes While the low percentage from coalition countries is expected due to enforcement measures, it is far from zero. This discrepancy highlights the complex nature of the issue at hand. Beyond the enforcement aspect, it underscores the existence of loopholes and inconsistencies in the export controls regime, especially concerning sanctioned goods and derogations.

The Dominance of Chinese and Other Key Jurisdictions More than half of all battlefield goods and critical components, in terms of value, are shipped to Russia from China. These shipments account for a substantial 53.2% and 53.8%, respectively. Beyond China, key jurisdictions such as Hong Kong, Turkey, and the United Arab Emirates also play pivotal roles in facilitating these shipments.

Collectively, these four jurisdictions – China, Hong Kong, Turkey, and the UAE – account for a staggering 86.2% of total battlefield goods shipments and 78.6% of critical components shipments. Their prominence highlights the global nature of these supply chains and the reliance on a network of intermediaries and jurisdictions to ensure the flow of these critical items to Russia.

Figure : Imports in January-October 2023 by country of dispatch

Figure Dynamics of imports by country of dispatch, in $ million

Examining the Buyers of Battlefield Goods and Critical Components in Russia

As we delve deeper into the intricate supply chains of battlefield goods and critical components destined for Russia, the final piece of the puzzle emerges—the identity of the buyers within Russia. In this analysis, which covers the period from January to October 2023, we explore the role played by Russian buyers, the inconsistencies in sanctions on them, and their significance in the supply chain.

Inconsistent Sanctions on Russian Buyers One notable observation is the inconsistency in sanctions imposed on Russian buyers of battlefield goods and critical components. Entities within the Russian military industry, often the end-users of these critical items, do not consistently face sanctions across different jurisdictions. This discrepancy in the application of sanctions adds a layer of complexity to the export controls landscape.

Russian Buyers: An Integral Component While Russian entities within the military industry do not typically serve as buyers of battlefield goods and critical components, they remain integral to the supply chain. Analyzing their role is crucial for the due diligence efforts of coalition companies. However, the sheer number of individual companies involved in these transactions results in their respective shares of total imports being relatively small.

Diverse Range of Buyers The data reveals a diverse range of buyers, each with its own specific role within the supply chain. Some of the most significant buyers, such as Vneshekostil, Novyi IT Project, and NPP Itelma, face sanctions in the United States but not in other jurisdictions, including the European Union and the United Kingdom. This disparity in sanctions creates substantial challenges in terms of export controls enforcement, as buyers can potentially exploit these discrepancies to access critical goods.

Russian Military Industry Links Another noteworthy finding is the presence of companies linked to the Russian military industry among the final buyers of battlefield goods and critical components. Entities such as EMC Expert, Favorit, NPP Itelma, IQ Components, Kvazar, SMT iLogic, Testkomplekt, and VMK appear in the data as purchasers of these items. A significant portion of these products originates from producers located in coalition countries, adding a layer of complexity to the supply chain dynamics.

Figure : Imports in January-October 2023 by buyer (top-15), in $ million

Source: KSE *dark blue = sanctioned by the United States

Key Foreign Companies Continue to Trade with Russia: An In-Depth Analysis of Current Dynamics

In the complex geopolitical landscape, the trade relations between various multinational companies and Russia have garnered significant attention. This analysis delves into the intricate details of these relationships, particularly focusing on companies whose products have been identified in Russian weapons used on the battlefield. Despite the imposition of sanctions and export controls, the persistence of these trade ties, though declining, raises critical questions about the efficacy of current international measures.

Figure : Imports in January-October 2023 by buyer (top-15), in $ million*

Source: KSE *dark blue = sanctioned by the United States

Persistent Trade amidst Sanctions

The analysis encompasses over 250 companies, as detailed in Appendix 4, highlighting the breadth of this issue. Prominent among these are American technology giants such as AMD, Analog Devices, Broadcom, Hewlett Packard, Honeywell International, Intel Corporation, Kingston Technology, Microchip Technology, and Texas Instruments. However, this is not solely an American phenomenon, as companies from Japan (Hitachi), Germany (Infineon Technologies), the Netherlands (NXP Semiconductors), South Korea (Samsung), and Switzerland (STMicroelectronics) also feature prominently.

The discovery of their products in Russian weaponry does not necessarily imply direct sanctions violations. Many of these products could have been sold before the escalation of hostilities. Nevertheless, it is notable that these goods continue to find their way to Russia, predominantly via third-party intermediaries, even after the imposition of sanctions.

Trade Dynamics Post-Sanctions

Overall Trade Trends

In 2022, following the imposition of export controls, there was an initial sharp drop in imports of critical components from these companies. However, a rebound was observed in the latter half of the year as Russia adapted to these restrictions. In 2023, the trend shifted, with trade values falling significantly to $242 million per month in the period from July to October—a 24% decline compared to the first half of 2023, and a 40% decrease versus the second half of 2022 and the pre-sanctions period.

Composition of Traded Goods

The trade predominantly consisted of semiconductors and integrated circuits, accounting for 52% ($1.49 billion) of the total trade in January-October 2023. While there was a 30% decrease in imports of these items compared to the second half of 2022, and a 39% decrease in computer components, electronics increased by 19%. Despite the overall decline, monthly imports of semiconductors and integrated circuits in 2023 ($150 million) were still 33% higher than pre-sanctions levels.

Figure : Imports of critical components from selected companies by type, in $ million

Geographic Distribution of Production and Sales

U.S.-headquartered companies accounted for 61% ($1.76 billion) of all critical components. Production largely occurred outside coalition countries, with China (35%, $991 million) and Malaysia (13%, $370 million) being the largest producers. Taiwan (13%, $367 million), the U.S. (8%, $238 million), South Korea (5%, $147 million), and the EU (5%, $144 million) also contributed significantly. Hong Kong and China became the primary jurisdictions for final sales and shipments to Russia in 2023, with the EU’s role diminishing substantially.

Figure : By country of producer, in $ million

Figure : By country of origin, in $ million

Company-Specific Supply Changes

Some companies increased their supplies to Russia compared to pre-sanction periods. Intel’s monthly supplies, for instance, decreased from $64 million in 2022 to $39 million in January-October 2023. Conversely, Analog Devices, Texas Instruments, STMicroelectronics, Microchip Technology, and NXP Semiconductors are likely to exceed their 2022 totals.

Figure : By country of seller, in $ million

Figure : By country of dispatch, in $ million

Figure : Mapping of Russian imports of critical components from selected coalition companies

Analysis of Monthly Developments

Analog Devices’ average monthly supplies of critical components to Russia in January-October 2023 were 51% higher than in 2022 and 162% higher than in 2021. NXP Semiconductors and STMicroelectronics also saw sales increases, though recent months indicate some improvement.

Figure : By producer (top-15), in $ million

Figure : By producer, index (100 = 2021 avg.)

Role of Third-Country Intermediaries

A significant portion of the supply chain involves third-country intermediaries, mainly located in China and Hong Kong. Entities from other countries like Serbia (e.g., Soha Info, Avala Informatika, and TTS Logistics), the United Kingdom (Mykines), and Lithuania (Telperion) also play roles in these transactions.

Russian Buyers Under Sanctions

Many Russian buyers, such as NPP Itelma ($91 million), Vneshekostil ($74 million), Lanprint ($59 million), and VMK ($39 million), are under U.S. sanctions but continue to acquire substantial amounts of goods. This underscores the inconsistencies and loopholes in the current sanctions regime.

The continued trade between key foreign companies and Russia, particularly in critical technological components, underscores the complexity of enforcing international sanctions and export controls. The data reveals a declining trend in the volume of these trades, yet the involvement of third-party intermediaries and the persistence of trade flows highlight the need for more stringent measures and international cooperation to effectively limit these critical components from reaching Russia.

Figure : By seller (2023, top-15), in $ million*

Source: KSE Institute *dark blue = sanctioned by the United States

Reassessing the Efficacy of Export Controls: A Comprehensive Analysis Post-Russia’s 2022 Invasion of Ukraine”

In the wake of Russia’s full-scale invasion of Ukraine in February 2022, a significant and robust response materialized in the form of stringent export controls. These measures, aimed primarily at Russia and Belarus, represent a notable escalation in the use of economic tools to counter military aggression. The scope and scale of these controls are unparalleled, targeting an economy of Russia’s size with a precise focus on dual-use goods – items that serve both civilian and military purposes.

This approach has resulted in the prohibition of the shipment of goods that might have military applications to Russia, while consumer goods continue to flow into the country. Such a strategic move is designed to disrupt military capabilities without unduly affecting the civilian population.

A critical aspect of these export controls involves the application of the U.S. Foreign Direct Product Rule (FDPR) to Russia. This rule posits that dual-use goods produced outside the United States but incorporating U.S. components, intellectual property, or software are subject to the same restrictions as those produced within the U.S. This is only the second instance of the FDPR being applied to an entire country, the first being Iran. This application turns the Russia scenario into a litmus test for the FDPR’s effectiveness in curbing military advancements.

Furthermore, there have been additional controls placed specifically on Russia’s military, amounting essentially to an embargo. While some of these measures have been in existence since 2014, their rigorous enforcement has only been observed post-invasion.

The implementation and enforcement of these export controls on Russia and Belarus necessitate a high degree of multilateral cooperation. This cooperation is vital because no single country holds an absolute advantage over products and technologies critical to the Russian military. However, challenges arise from the non-participation of significant economies like China in the sanctions regime.

Historically, during the Cold War, the West controlled the export of strategic goods to the Soviet Union and its allies through the Coordinating Committee for Multilateral Export Controls (CoCom). With the dissolution of CoCom in the early 1990s, the focus shifted to military goods and nuclear non-proliferation issues. The Wassenaar Arrangement, a voluntary export controls regime among member states, succeeded CoCom. It facilitates information exchange on conventional weapons and dual-use goods and technologies. Unlike CoCom, the Wassenaar Agreement does not target specific states and decisions are taken unanimously, with Russia being a participant.

The effectiveness of these export controls, however, is only partially realized. Russia has been forced to resort to more expensive supply routes and inferior-quality products. Nonetheless, vigilance in policy design, implementation, and enforcement remains crucial due to potential loopholes and systematic efforts at circumvention. As highlighted in this report and our previous publications, Russia’s military still acquires products from coalition countries and has maintained access to them. Notably, in the first ten months of 2023, Russia imported $8.77 billion in battlefield goods, identified as enforcement priorities by the European Union, U.S., and others, marking a 20.5% increase over the corresponding period in 2022. The total imports of critical components in January-October 2023 reached $22.29 billion, up 4.8%.

Enhancing Export Controls: A Multifaceted Strategy to Counter Russian Circumvention Tactics

In the complex geopolitical landscape, the effectiveness of export controls as a tool to limit Russia’s strategic capabilities, particularly in the context of the Ukraine conflict, has become a topic of significant importance. These controls, however, face challenges that necessitate an adaptive and robust approach to remain effective. This article delves into the intricacies of strengthening export control regimes, outlining the vulnerabilities in the current system and proposing comprehensive steps to address them.

Challenges in the Existing Export Controls Framework

The effectiveness of export controls is currently undermined by several factors:

  1. Inadequate Compliance: Entities in coalition countries often exhibit insufficient compliance efforts. This lack of strict adherence to the controls allows for loopholes that Russia can exploit.
  2. Absence of Sanctions on Intermediaries: Third-country intermediaries engaged in export controls evasion schemes often operate without facing sanctions. This gap provides a conduit for Russia to circumvent the controls.
  3. Inconsistent Regulations: There is a lack of uniformity in regulations concerning sanctioned items. This inconsistency across different jurisdictions makes enforcement challenging.
  4. Jurisdictional Issues: The coalition faces internal jurisdictional challenges, complicating the enforcement of export controls.

Proposed Steps to Strengthen Export Controls

To address these challenges, we propose a multifaceted approach:

  1. Closing Policy Gaps: The current regime exhibits inconsistencies that allow for circumvention. Aligning, simplifying, and expanding regulations across jurisdictions, particularly in areas like licensing procedures and the application of technology sanctions (e.g., the Foreign Direct Product Rule in the U.S.), is crucial.
  2. Harmonizing Export Controls Across Jurisdictions: Efforts should be made to classify the same items as “dual use” in all coalition jurisdictions and include Harmonized System (HS) codes for effective monitoring. This approach should also extend to Belarus, considering its close ties with Russia.
  3. Broadening Product Categories: The focus on specific products leaves room for circumvention. A broader categorization of controlled items, at least at the six-digit HS code level, would close loopholes.
  4. Targeting Civilian-Military Linkages: Sanctions need to address the increasingly interconnected civilian and military sectors. Expanding sanctions to include entities playing key roles in this regard is essential. This includes addressing entities not currently subject to comprehensive restrictions.
  5. Strengthening Government Institutions and Enforcement: Governments should regularly review export-controlled items and enhance their capacity for physical inspections and specialized expertise, particularly in advanced microelectronics.
  6. Empowering the Private Sector: Incentivizing and mandating private entities to enhance compliance and investigate corporate ties to sanctioned entities is crucial.
  7. Improving Multilateral Cooperation: Strengthening cooperation among coalition countries in the field of export controls is vital for a cohesive and effective approach.

As Figure A in the referenced document attempts to illustrate, the complexity of implementing effective export controls in the context of Russian circumvention efforts is substantial. The proposed measures aim to close existing policy gaps, strengthen enforcement mechanisms, and foster a more unified approach among coalition countries. By addressing these challenges comprehensively, the international community can better restrict Russia’s access to critical goods and technologies, thereby limiting its strategic capabilities in the ongoing conflict.

Figure A: Map of export controls loopholes

Strengthening Global Export Controls: The Imperative of Enforcing Foreign Direct Product Rules

In the intricate web of global trade and politics, the enforcement of the Foreign Direct Product Rule (FDPR) emerges as a crucial mechanism to impede the influx of export-controlled goods into Russia. This article delves into the complexities and current challenges of implementing the FDPR, particularly in the context of goods produced by companies headquartered in coalition countries but manufactured and shipped from diverse global locations.

The Critical Role of FDPR in Export Controls

  • U.S. Leadership in FDPR Enforcement: The United States has been at the forefront of implementing the FDPR, applying export controls to goods with significant U.S. contributions, regardless of their global production or trading points. This ensures that products with substantial U.S. input are subject to U.S. export regulations, even when manufactured abroad.
  • Challenges in U.S. FDPR Enforcement: Despite clear regulations, there are notable loopholes. A significant proportion of goods produced by U.S.-based companies are rerouted to Russia via intermediaries. The U.S. authorities face challenges in monitoring compliance due to inadequate data for cross-checking corporate reports and a lack of effective on-site checks. Furthermore, the application of the FDPR, especially concerning production in Europe, may have been weakened during negotiations with partner countries.

Global Discrepancies in Export Control Regulations

  • Debate over FDPR-like Regulations in the EU: The European Union introduced restrictions on the intellectual property of EU persons or entities in its 11th sanctions package. However, the legal clarity and extraterritorial application of these measures do not match the stringent nature of the U.S. FDPR. The EU’s regulations lack the comprehensive reach needed to control the flow of goods containing critical inputs from being manufactured and sold outside its jurisdiction.
  • Need for Global Harmonization: There is a pressing need for coalition countries to establish regulations akin to the FDPR. These should ensure that restrictions apply to goods containing certain inputs, regardless of the location of manufacturing or sales. This approach would create a more uniform and effective global export control regime, significantly impeding Russia’s access to crucial goods and technologies.

The effective implementation of the Foreign Direct Product Rule and similar regulations worldwide is essential in the ongoing effort to control the flow of strategic goods and technologies to Russia. The U.S. model serves as a benchmark, but the challenges it faces highlight the need for improved data collection, monitoring, and enforcement mechanisms. Simultaneously, the European Union and other coalition countries must strengthen their legal frameworks to match the extraterritorial reach of the U.S. FDPR. Only through a concerted and harmonized global effort can the coalition hope to close the existing loopholes and significantly impact Russia’s access to vital resources.

Refining Export Controls: Stringent Measures Against Russian Circumvention

In the realm of international trade and security, the enforcement of export controls plays a pivotal role in regulating the flow of technology and dual-use goods to countries of concern, such as Russia. This article provides an in-depth analysis of the critical steps needed to reinforce the export controls regime, specifically focusing on the U.S. De-Minimis rule, the licensing process, and the criminalization of sanctions violations.

Revisiting the De-Minimis Rule for Russia

  • Lowering the Threshold: The current De-Minimis threshold for technology products heading to Russia stands at 25% for dual-use goods. This threshold determines the percentage of U.S. content in a product above which U.S. export controls are triggered. There’s an emerging consensus on the need to lower this threshold to 0% for all shipments to Russia, aligning it with the stringent measures applied to Group E1 countries like Iran, North Korea, and Syria.
  • Implications of a 0% Threshold: Implementing a 0% De-Minimis level for Russia would necessitate a Bureau of Industry and Security (BIS) license for any item with U.S. content, regardless of the percentage. This measure, already in place for certain China-related technologies, would place Russia in a category with countries facing the most stringent restrictions. It’s a strategic move to underscore the seriousness of the situation and the coalition’s commitment to limiting Russia’s access to critical technology.

Strengthening the Licensing Process and Limiting Derogations

  • Enhancing Transparency and Harmonization: The process for obtaining export licenses, especially in the European Union, needs to be more transparent and rules-based. Currently, companies can engage in “license shopping” by obtaining licenses from the least strict jurisdictions within the EU. This loophole allows for easier access to controlled goods.
  • Reducing Exemptions: The EU and the U.S. need to critically assess and possibly remove certain grounds for exemptions or derogations from export restrictions applicable to Russia. These exemptions currently represent significant loopholes through which Russia can import controlled goods, particularly in sectors like medical applications.

Criminalizing Sanctions Violations and Establishing Negligence Provisions

  1. Enhancing Legal Frameworks: There’s a pressing need to criminalize violations of export controls and define negligence clearly in legal terms. This step is crucial to ensure that entities are held accountable not only when they knowingly violate sanctions but also when they should have been aware of such violations.
  2. Aligning EU and U.S. Provisions: Progress is being made in the European Union regarding the criminalization of export controls violations. It is imperative that the EU finalizes these rules swiftly and aligns them with similar provisions in the United States. This alignment will enhance the efficacy of the export controls regime and ensure consistent enforcement across coalition jurisdictions.
  3. Role of Enforcement Agencies: Empowering enforcement agencies in coalition countries to penalize both natural and legal persons for violations is key. This would create stronger incentives for companies to conduct thorough due diligence and comply with export controls.

The proposed measures to revamp the export controls regime, particularly concerning Russia, reflect a strategic and necessary response to the evolving geopolitical landscape. Lowering the De-Minimis level, strengthening the licensing process, and criminalizing sanctions violations are steps that would significantly tighten the noose around Russia’s procurement of critical technology and dual-use goods. These steps not only aim to restrict Russia’s strategic capabilities but also send a clear message of the international community’s resolve to enforce stringent export controls.

Reinforcing Global Export Controls: Addressing Modern Challenges in Economic Statecraft

In the evolving landscape of global trade and security, the reinforcement of government institutions for effective export control has become a critical necessity. This article examines the current challenges and proposes strategies for strengthening the institutional capacity of coalition countries, particularly focusing on the United States, the European Union, and the United Kingdom.

Context and Challenges of Modern-Day Export Controls

Export controls, particularly on dual-use goods, have emerged as a vital tool in economic statecraft, especially in the context of limiting Russia’s strategic capabilities. The complexity of modern supply chains significantly surpasses that of the Cold War era, posing new challenges to enforcement agencies:

  • Insufficient Institutional Resources: Agencies responsible for implementing export controls are often under-resourced, lacking the necessary financial and human capacities to effectively monitor and enforce regulations. The sheer volume of transactions – over 800,000 for battlefield goods between January and October 2023 alone – makes comprehensive investigations to identify and penalize circumvention schemes challenging.
  • Jurisdictional Complexities: Modern sanctions regimes are complicated by transactions that do not involve physical transport of goods through coalition countries, raising jurisdictional questions and diminishing the role of customs services.

Specific Challenges and Developments in Key Regions

  • United States: While structures for export controls exist, agencies lack adequate resources to address the broader scope of contemporary challenges. The U.S. needs to invest in expanding its financial and human resources dedicated to export controls.
  • European Union: The EU’s approach of delegating sanctions implementation to member states struggles with the complexity of 21st-century sanctions regimes. The decentralized structure and the minimal involvement of customs services in non-physical transactions contribute to fragmentation and inefficiency.
  • United Kingdom: The establishment of the Office for Trade Sanctions Implementation (OTSI) is a positive step towards specialized enforcement of trade sanctions, including export controls. OTSI’s focus on companies avoiding sanctions marks an advancement over the traditional functions of the Office for Financial Sanctions Implementation (OFSI).

Capacity Building and Technological Solutions

  • Technological Advancements in Monitoring: Implementing systems for tracking goods through the supply chain, starting with larger items and eventually including smaller components like semiconductors, is a promising approach. These systems could leverage tamperproof identifiers, such as serial numbers, to prevent erasure and misuse.
  • Remote Disabling of Illicitly Acquired Goods: The development of technologies to remotely disable items that end up in Russia presents an innovative solution. Such a measure could act as a significant deterrent, ensuring that even if goods are illicitly acquired, their utility is nullified.
  • Cross-Jurisdictional Cooperation: Enhancing cooperation among coalition countries is essential for developing and implementing these technological solutions. Sharing best practices, standardizing tracking methodologies, and jointly investing in technological advancements will bolster the effectiveness of export controls.

The modernization of export controls requires a multifaceted approach, combining enhanced institutional capacities, technological advancements, and international cooperation. By addressing these challenges, coalition countries can significantly improve their ability to enforce export controls, thereby limiting Russia’s access to critical dual-use goods and technologies. This advancement is not only crucial for the current geopolitical scenario but also sets a precedent for managing future economic statecraft challenges in an increasingly interconnected world.

Reinforcing Global Export Controls: Addressing Modern Challenges in Economic Statecraft

In the evolving landscape of global trade and security, the reinforcement of government institutions for effective export control has become a critical necessity. This article examines the current challenges and proposes strategies for strengthening the institutional capacity of coalition countries, particularly focusing on the United States, the European Union, and the United Kingdom.

Context and Challenges of Modern-Day Export Controls

Export controls, particularly on dual-use goods, have emerged as a vital tool in economic statecraft, especially in the context of limiting Russia’s strategic capabilities. The complexity of modern supply chains significantly surpasses that of the Cold War era, posing new challenges to enforcement agencies:

  • Insufficient Institutional Resources: Agencies responsible for implementing export controls are often under-resourced, lacking the necessary financial and human capacities to effectively monitor and enforce regulations. The sheer volume of transactions – over 800,000 for battlefield goods between January and October 2023 alone – makes comprehensive investigations to identify and penalize circumvention schemes challenging.
  • Jurisdictional Complexities: Modern sanctions regimes are complicated by transactions that do not involve physical transport of goods through coalition countries, raising jurisdictional questions and diminishing the role of customs services.

Specific Challenges and Developments in Key Regions

  • United States: While structures for export controls exist, agencies lack adequate resources to address the broader scope of contemporary challenges. The U.S. needs to invest in expanding its financial and human resources dedicated to export controls.
  • European Union: The EU’s approach of delegating sanctions implementation to member states struggles with the complexity of 21st-century sanctions regimes. The decentralized structure and the minimal involvement of customs services in non-physical transactions contribute to fragmentation and inefficiency.
  • United Kingdom: The establishment of the Office for Trade Sanctions Implementation (OTSI) is a positive step towards specialized enforcement of trade sanctions, including export controls. OTSI’s focus on companies avoiding sanctions marks an advancement over the traditional functions of the Office for Financial Sanctions Implementation (OFSI).

Capacity Building and Technological Solutions

  1. Technological Advancements in Monitoring: Implementing systems for tracking goods through the supply chain, starting with larger items and eventually including smaller components like semiconductors, is a promising approach. These systems could leverage tamperproof identifiers, such as serial numbers, to prevent erasure and misuse.
  2. Remote Disabling of Illicitly Acquired Goods: The development of technologies to remotely disable items that end up in Russia presents an innovative solution. Such a measure could act as a significant deterrent, ensuring that even if goods are illicitly acquired, their utility is nullified.
  3. Cross-Jurisdictional Cooperation: Enhancing cooperation among coalition countries is essential for developing and implementing these technological solutions. Sharing best practices, standardizing tracking methodologies, and jointly investing in technological advancements will bolster the effectiveness of export controls.

The modernization of export controls requires a multifaceted approach, combining enhanced institutional capacities, technological advancements, and international cooperation. By addressing these challenges, coalition countries can significantly improve their ability to enforce export controls, thereby limiting Russia’s access to critical dual-use goods and technologies. This advancement is not only crucial for the current geopolitical scenario but also sets a precedent for managing future economic statecraft challenges in an increasingly interconnected world.

Revamping Export Controls: Integrating Financial Industry Practices and Enhancing Corporate Accountability

In the intricate world of international trade, especially concerning the trade of export-controlled goods, the role of corporate responsibility and due diligence is paramount. This article delves into the strategies and reforms needed to strengthen the export controls regime, drawing lessons from the financial industry and advocating for enhanced accountability and risk management in the private sector.

Applying Financial Industry Practices to Export Controls

  • Know-Your-Client (KYC) Practices: The financial sector’s success in implementing effective compliance structures, particularly KYC and understanding their clients’ clients, provides a model for non-financial corporates. Regulators in the financial industry have mandated such systems, especially in areas like anti-money laundering (AML), which could be adapted for the export controls field. Adjustments to the legal framework are necessary to mandate due diligence procedures and facilitate information sharing.
  • Clear Guidance for the Private Sector: Authorities need to offer explicit guidance on export controls to alleviate the impact of increased compliance requirements. This guidance should define products using Harmonized System (HS) codes, outline mandatory procedural steps, specify exceptions, and detail reporting obligations. Simplifying export control regulations will aid both enforcement agencies and private sector compliance.
  • Capacity Building Support: While large companies often have dedicated compliance departments, smaller entities, especially SMEs involved in distributing export-controlled goods, might not. Authorities should engage with these smaller entities, offering clear guidance and support for capacity building across the supply chain.

Leveraging Financial Industry Expertise in Export Controls

  • Engagement in Transaction Tracking: Financial institutions’ expertise in AML and anti-terrorist financing can be leveraged for export controls, particularly in tracking opaque ownership structures and transactions in less-strict jurisdictions. Modifications to the legal framework to allow financial institutions access to more detailed transaction information would enhance their ability to apply existing procedures to export control compliance.
  • Establishing a Business Partner Database: A database containing detailed information about potential business partners, including company structures, beneficial ownership, related parties, sanctions coverage, and past violations, would significantly aid companies in due diligence. Governments should support the establishment of such a database, facilitating information sharing and lowering due diligence costs, particularly for SMEs.

The integration of financial industry practices into the realm of export controls represents a significant step towards enhancing corporate accountability and compliance. By adopting KYC-like procedures, providing clear regulatory guidance, and leveraging financial institutions’ expertise in transaction tracking, the effectiveness of export controls can be substantially improved. Additionally, the establishment of a comprehensive business partner database would further streamline compliance efforts, particularly benefiting smaller entities in the supply chain. These measures, collectively, would not only tighten the existing export control regime but also set a precedent for future global trade practices in highly regulated sectors.

Intensifying Export Controls: Addressing Third-Country Circumvention in Global Sanctions Regime

The efficacy of the Russia export controls, unprecedented in their scope, is currently challenged by the actions of third-country intermediaries. These entities, located outside the jurisdiction of the primary coalition countries, play a pivotal role in Russia’s procurement of military-industrial goods. This article explores the measures required to strengthen export controls by targeting these intermediaries, emphasizing the need for coercive measures and enhanced international cooperation.

Challenges Posed by Third-Country Intermediaries

Third-country entities have become instrumental in Russia’s ability to import essential goods for its military industry. In many instances, these goods do not physically pass through coalition countries, nor do entities from these jurisdictions partake in the transactions. This scenario underscores a crucial gap in the current export controls regime, necessitating the targeting of these intermediaries through sanctions and other coercive measures.

Strategies for Targeting Third-Country Circumvention

Imposing Sanctions on Third-Country Entities: The use of sanctions, including asset freezes and transaction bans, should be extended to companies found violating export controls. This would involve the application of measures that extend beyond primary sanctions, reaching entities located in third countries.

a. United States Approach: The U.S. has significant experience with the extraterritorial application of sanctions, or secondary sanctions. These sanctions leverage the global importance of access to the U.S. market and financial system. Secondary sanctions condition access to these on compliance with U.S. sanctions, effectively leaving entities with little choice but to comply. Examples include the repercussions on European companies following the U.S.’s withdrawal from the Iran nuclear deal and the cessation of activities related to Nord Stream 2 by companies due to U.S. Congress-imposed sanctions.

b. European Union Mechanism: Despite the EU’s stance against secondary sanctions, the 11th sanctions package, introduced in June 2023, has established a mechanism to target third-country entities. This anti-circumvention tool empowers the EU to impose restrictions on companies violating EU sanctions and, if necessary, to restrict transactions with certain third countries deemed high-risk for circumvention.

The Need for Broader Trade Restrictions

In cases where evasion efforts are systemic, and the aforementioned measures prove insufficient, broader trade restrictions should be considered. These would aim to cut off alternative supply routes for Russia, further constricting its access to essential goods for its military industry. Such a step would represent an escalation in the sanctions regime, highlighting the coalition’s determination to enforce stringent export controls.

The challenge of third-country circumvention in the context of Russia export controls necessitates a multi-faceted approach. This includes imposing targeted sanctions on non-compliant entities, leveraging the experience and legal frameworks of coalition countries like the U.S. and the EU, and considering broader trade restrictions. Enhancing international cooperation and outreach to both public and private sectors in these third countries is also crucial. Through these measures, the global community can reinforce the effectiveness of export controls, ensuring they serve their intended purpose in restricting Russia’s military capabilities.

Enhancing Global Export Controls: Addressing Systemic Issues and Third-Country Non-Compliance

In the realm of international sanctions and export controls, addressing the role of third countries in circumventing these measures has become increasingly critical. This article examines the strategies and broader restrictions needed to reinforce the export controls regime, particularly focusing on third countries with systemic non-compliance issues.

Strategies for Restricting Exports to Non-Compliant Countries

  • Implementing Export Quotas: To mitigate the issue of transshipments through countries beyond the reach of sanctions, the implementation of export quotas is proposed. These quotas would limit exports of specific goods to certain countries, based on benchmarks from the period prior to the full-scale invasion. Exports surpassing these benchmarks would be either prohibited or subjected to increased scrutiny.
  • Considering Export Bans: In cases where quotas are insufficient, banning exports of specific goods to particular countries entirely should be considered. The European Union, with its newly established anti-circumvention tool, has created a mechanism to enforce such bans if systematic issues are identified.
  • Market Access Restrictions: Countries that refuse to assist in the implementation of export controls could face denial of access to coalition markets. Conversely, countries that demonstrate cooperation could receive preferential treatment.
  • Expanding In-Use Checks: To enforce compliance, authorities should significantly increase checks in third countries. This would emphasize the commitment to investigating violations related to the use of exported goods, such as unauthorized on-shipment to Russia.

Engaging Third Countries in Export Controls Compliance

  • Outreach to Public and Private Sectors: The export controls coalition should actively engage with both government authorities and businesses in third countries. The goal is to improve compliance with the sanctions regime and prevent circumvention efforts.
  • Key Deliverables for Third Countries:
    1. Political Commitments: Secure commitments from third-country governments to halt export control violations and circumvention efforts.
    2. Information Sharing Initiatives: Foster initiatives that improve the sharing of trade data and other relevant information with coalition governments.
    3. Strengthening Administrative Capacities: Assist in enhancing the capabilities of third-country customs services and other relevant administrative bodies.
    4. Technical Assistance: Provide support to private sector entities in third countries to help them comply with the export controls.

Addressing systemic problems in third countries is vital for the effectiveness of global export controls. Through a combination of export quotas, potential bans, market access restrictions, and expanded checks, coalition countries can significantly deter and reduce the circumvention of sanctions. Engaging with third countries to secure political commitments, improve information sharing, and bolster administrative capacities is equally critical. These measures collectively represent a comprehensive approach to ensuring the integrity of the export controls regime, ultimately contributing to the broader goal of maintaining international peace and security.

Strengthening Global Security: The Imperative of Enhanced Multilateral Cooperation in Export Controls

In an era marked by the complexity of global supply chains and the sophisticated nature of modern-day export controls, the need for improved multilateral cooperation has become increasingly evident. This article explores the critical steps necessary to enhance this cooperation, focusing on the exchange of information, joint investigations, and the establishment of a multilateral export controls treaty, particularly in the context of restricting dual-use goods shipments to Russia.

Enhancing Information Exchange

Efficient and timely information exchange is paramount for effective export control enforcement. Comprehensive transaction data, particularly regarding trade in military or dual-use components, needs to be shared among coalition countries. Utilizing a wide array of information sources, including publicly available data and more, can provide a deep understanding of Russia’s procurement strategies for critical military components. Such shared intelligence is vital for identifying enforcement priorities. Furthermore, effective information sharing should extend to the academic and think tank community, enabling them to contribute data and insights.

Joint Investigations of Export Controls Violations

Due to the multi-jurisdictional nature of critical component trade, coalition authorities must collaborate closely in investigating export controls violations. Proactive monitoring and leveraging all available data sources are essential to identify evolving circumvention schemes and adapt to changing tactics. Joint investigations would ensure a coordinated approach to tackling non-compliance, increasing the overall effectiveness of the export controls regime.

Proposing a Multilateral Export Controls Treaty

The current multilateral framework for export controls, embodied by the Wassenaar Arrangement, has shown limitations, particularly in responding to contemporary geopolitical challenges. Its inability to update regulations on microelectronics and other critical technologies, partly due to Russia’s veto, highlights the need for a more robust and binding export controls regime. A new treaty should be established where participating countries can promptly respond to security threats, including those posed by Russia and China. Crucially, this treaty should incorporate mechanisms to suspend a member’s voting rights on matters directly concerning its conduct, especially in cases of international law or human rights violations.

The transformation of technology sanctions into a fundamental tool of economic statecraft necessitates more permanent and effective multilateral structures. By improving information exchange, undertaking joint investigations, and establishing a robust multilateral export controls treaty, the international community can significantly enhance its ability to prevent the flow of dual-use goods to nations like Russia. These steps are not only crucial for maintaining global security but also for preserving the credibility and effectiveness of export controls in a rapidly evolving international.

The Pivotal Role of Analog Devices and Texas Instruments in Russian Military Equipment Supply Chains

Analog Devices and Texas Instruments, two giants in the semiconductor and integrated circuit industry, have emerged as significant contributors to Russia’s military equipment production. These companies, known for their advanced electronic components, have been found to supply critical inputs to nearly all categories of Russian weapons. As per the latest data, Analog Devices and Texas Instruments account for 14% and 13% respectively, of all foreign components identified in Russian military equipment. This substantial involvement suggests that enhanced compliance procedures from these firms could markedly disrupt Russia’s military production capabilities.

Trade Dynamics and Price Fluctuations in the Wake of Sanctions

An analysis of trade patterns post-sanctions reveals a notable uptick in the trade value of products from both companies since the latter half of 2022. Figures A1 and A2 delineate these trends. However, a critical aspect of this analysis involves understanding the pricing dynamics of their products. Though comprehensive data on transaction volumes is lacking, available information indicates that prices for products from Analog Devices and Texas Instruments have surged by 2.2 and 2.6 times respectively.

In terms of volume, this escalation translates to a comparatively modest increase in Russian imports from Analog Devices and a decline in purchases from Texas Instruments. Several factors contribute to these price changes:

  • Increased complexity in supply chains due to export controls has led to multiple intermediaries, each adding a margin, thus inflating the final price.
  • A possible shift in Russian procurement towards more advanced products to meet military demands, leading to a rise in average prices.
  • Reflecting general market trends, these price hikes also encapsulate broader economic shifts.

Geographical Spread of Production and Supply Routes

While both companies are based in the United States, only a fraction of their production occurs domestically – 8% for Analog Devices and 7% for Texas Instruments. In recent years, there’s been a strategic shift towards offshore manufacturing, with production in China, Malaysia, the Philippines, and Thailand jumping to 75% for Analog Devices and 80% for Texas Instruments. Concurrently, their production footprint in the EU and Taiwan has diminished.

Analyzing the trade dynamics further, China, Hong Kong, Turkey, and the UAE emerge as key transit points for products destined for Russia. However, other locations like Kazakhstan, the Kyrgyz Republic, Serbia, the Virgin Islands, Mongolia, and the Maldives, and notably India, also play roles in these supply chains.

The Case of Tordan Industries and Russian Shell Companies

A significant instance of this complex network is the involvement of Hong Kong-based Tordan Industries, a key supplier of Analog Devices and Texas Instruments products to Russia. Despite facing sanctions from the US, EU, and Switzerland, Tordan Industries recorded sales of $16.5 million to Russia between January and October 2023. This case exemplifies Russia’s strategy of using shell companies to maintain access to essential components. For instance, First Company of Consulting and Secretarial Services, a Russian entity operating at the same address as Tordan Industries in Hong Kong, facilitates Russian companies in obtaining critical services and licenses.

Military Links and the Need for Diligent Monitoring

In 2023, it was found that at least 18% of Analog Devices’ products and 16% of Texas Instruments’ products purchased in Russia were by entities linked to the military industry. Given the evolving nature of these buyer profiles, continuous monitoring and investigation into these links are imperative.

Conclusion

The involvement of Analog Devices and Texas Instruments in supplying components crucial for Russian military equipment underscores a complex global challenge. It highlights the need for stringent compliance measures and vigilant monitoring by enforcement agencies to prevent sanction evasion and to understand the nuanced dynamics of this trade. As geopolitical landscapes shift, the role of these tech giants in international security contexts continues to be of paramount importance.

Figure A1: Imports of Analog Devices products

Figure A2: Imports of Texas instruments products

The Crucial Role of CNC Machines in Russia’s Military Production and the Impact of Sanctions

Introduction to CNC Machines in Military Production

Computer Numerical Control (CNC) machines, fundamental to various industries including aerospace, automotive, metalworking, and electronics, play an indispensable role in military manufacturing. These highly automated tools are crucial in producing weapon hulls, aircraft parts, missile and drone/UAV components, and microelectronics. In Russia, approximately 70-80% of CNC machinery is utilized by the military-industrial complex, making it a significant consumer in the country. This dependency presents an opportunity for the sanctions coalition to strategically limit Russia’s military capabilities, particularly in its conflict with Ukraine.

The Implementation of Export Controls and Restrictions

In response to the critical role CNC machines play in Russia’s military industry, several jurisdictions within the sanctions coalition, including the European Union and Japan, have imposed strict export controls. The EU’s expansion of restricted items on December 18, 2023, now encompasses CNC machine tools and related spare parts, effectively banning their sale, supply, transfer, or export. Additionally, the 12th sanctions package targets the export of production process control software, including CAD and CAM programs essential for CNC machinery operation. These restrictions are a strategic move to exploit vulnerabilities in Russia’s military production capabilities. South Korea, another key player in the CNC machinery sector, is also urged to implement similar comprehensive restrictions to prevent Russia from accessing alternative suppliers.

Analyzing the Supply Chain Dynamics of CNC Machines in Russia

Overview of Supply Chain Changes

The supply chain for CNC machines, crucial for Russian military production, has undergone notable shifts in response to international sanctions. A detailed analysis of trade data from January to October 2023 reveals significant changes, especially when compared to other categories like “battlefield goods” and “critical components.”

Concentration of Producers in Coalition Countries

A striking feature of the current supply chain is the dominance of producers from export controls coalition countries in the CNC machinery sector. They account for a substantial 97.8% of the total trade in CNC machines and spare parts deemed critical for Russia. These producers are predominantly located in a few countries:

  • Germany accounts for 42.3% of the total trade.
  • South Korea and Taiwan follow with 20.7% and 19.5%, respectively.
  • The United States and Japan also contribute significantly, with 7.1% and 6.9%.

This concentration in a limited number of countries is a crucial factor in the effectiveness of sanctions and export controls.

Production Locations and Shifts

In terms of production locales:

  • Germany leads with 28.0% of the production.
  • Taiwan and South Korea are also major producers, contributing 20.4% and 15.9%.
  • Interestingly, China’s role as a country of production has increased to 22.1%, which is notable as it partly replaces manufacturing previously done in EU countries.
  • Taiwanese companies and factories have been particularly instrumental in the surge of Russian imports in 2023.

The Role of China, Hong Kong, and Turkey

Despite stringent export controls, the data indicates that:

  • The majority of CNC machines and spare parts are sold and/or shipped to Russia by entities in China, Hong Kong, and Turkey.
  • Coalition countries collectively account for only 10.6% of sales and 21.7% of shipments during this period.
  • The decline in European sellers and dispatchers, who previously played a significant role, makes the enforcement of export controls more challenging for coalition customs services.

Direct Shipments from Coalition Countries

Despite the general trend, there are still direct shipments from coalition countries:

  • EU countries account for 8.6% of these direct shipments.
  • South Korea and Taiwan are also notable, with 7.5% and 5.5%, respectively.
  • Within the EU, the largest shares come from Finland, Poland, Germany, Lithuania, and Latvia.

Turkey’s Enhanced Role

Turkey’s role in the supply chain of CNC machines and spare parts is more pronounced compared to other product subsets. This emphasizes Turkey’s strategic position in the trade of these crucial components, potentially acting as a significant intermediary.

Implications and Conclusions

These supply chain dynamics highlight several critical aspects:

  • Dominance of Coalition Countries: The concentration of production and trade within coalition countries suggests that sanctions could be highly effective if enforced rigorously.
  • China’s Growing Role: The increasing involvement of China in the production and shipment of CNC machines to Russia presents a challenge to the effectiveness of the sanctions.
  • Challenges in Enforcement: The shift towards non-coalition countries like China, Hong Kong, and Turkey for the final sale and shipment stages complicates the enforcement of export controls.
  • Potential Loopholes: Direct shipments from coalition countries, albeit small in percentage, indicate potential loopholes or lack of stringent enforcement in some regions.
  • Strategic Position of Turkey: Turkey’s significant role in the trade highlights its strategic position and the need for close monitoring and potential diplomatic engagement to ensure effective sanction implementation.

The supply chain for CNC machines destined for Russia reflects the complexities and challenges in enforcing international sanctions. The data indicates both the potential effectiveness of these measures and the need for vigilance to address emerging trends and loopholes in the system.

Figure : By country of producer, in $ million

Figure : By country of origin, in $ million

Figure : By country of seller, in $ million

Figure : By country of dispatch, in $ million

Figure : By producer (top-15), in $ million

Figure : By seller (2023, top-15), in $ million*

Figure : By buyer (2023, top-15), in $ million*

Trade Dynamics and Supply Chain Observations

Analysis of open-source data, including procurement reports and visual evidence from Russian military production facilities, sheds light on the current state of CNC machinery usage in Russia. Notably, 38 significant producers of CNC machinery, like DMG Mori and FANUC, have been identified as critical to Russia. Despite initial drops in imports post-sanctions, there was a strong rebound towards the end of 2022. In the period from January to October 2023, Russia imported CNC machinery worth $189 million and spare parts worth $103 million, indicating a substantial increase in imports compared to the pre-invasion period.

The supply chain dynamics reveal that the majority of CNC machines and spare parts originate from coalition countries, with significant contributions from Germany, South Korea, Taiwan, the United States, and Japan. Interestingly, China’s role as a production country has grown, partly replacing manufacturing in EU countries. Direct shipments from coalition countries still occur, with the EU, South Korea, and Taiwan being notable sources.Figure: Russian imports of CNC machinery from 38 key companies, in $ million

The Evolving CNC Machine Market and Export Controls Enforcement

The Economic Security Council of Ukraine (ESCU) notes a trend of declining western-made CNC machines in Russia, with an increase in Chinese counterparts. Although China leads in low- and medium-precision CNC machines, there remains a gap in high-precision machine production. Complexities arise as some Chinese machine tools may bear Western brands but are manufactured in China. Strengthened export controls are expected to make a significant impact in the coming months. Due to the sizable nature of CNC machines, controlling their trade is relatively easier, potentially allowing for more effective tracking and enforcement of export controls.

Analysis of Producers and Trade Patterns

The analysis reveals that many producers in the sample have significantly increased their trade with Russia since the start of the full-scale invasion. Companies like Siemens, DN Solutions, I Machine Tools, Spinner, and Victor Taichung Machinery Works saw higher sales in the first ten months of 2023 than in the entire years of 2022 or 2021. Conversely, some companies like Hyundai, Fanuc, and DMG Mori have reduced their exposure to the Russian market.

Final Sellers and Buyers in Russia

An in-depth analysis of historical contracts and public procurement records indicates that most top sellers have direct or indirect links with Russian military entities. Companies such as SFT, Baltic Industrial Company, and Sois Konsalt are explicitly connected to military production. This pattern emphasizes the importance of diligent monitoring and enforcement of export controls to prevent CNC machinery from bolstering Russia’s military capabilities.

The trade and supply dynamics of CNC machines highlight a critical aspect of Russia’s military-industrial complex. The enforcement of export controls by coalition countries plays a pivotal role in limiting Russia’s military production capacity. The ongoing developments in the CNC machine market and the strategies employed by Russia to circumvent these restrictions will be crucial in shaping the future of military production and the effectiveness of international sanctions.

Addressing the Challenge of Subsidiary Loopholes in Technology Export Controls: The Case of SenseTime

The Initial Listing of SenseTime and its Implications

In 2019, a significant development in the realm of international technology trade occurred when the Bureau of Industry and Security (BIS) of the United States added Chinese facial recognition technology developer SenseTime to the Entity List under the Export Administration Regulations (EAR). This move was prompted by reports indicating that SenseTime’s patent filings suggested its technology could differentiate between Uyghur and non-Uyghur individuals, thereby enabling the identification of Uyghurs in crowds. The inclusion in the EAR Entity List meant that any shipment to SenseTime now required a license, which could be either conditionally granted or outright denied.

SenseTime’s Response and the Loophole Exploitation

However, SenseTime’s response to this listing revealed a critical loophole in the export control system. The company managed to acquire advanced chips through subsidiaries that were not listed on the EAR Entity List. This strategy effectively circumvented the restrictions placed on SenseTime, with the company even asserting that the BIS’s actions had little to no impact on its operations. This situation underscores a significant challenge in the enforcement of technology export controls: the ease with which companies can bypass restrictions through unlisted subsidiaries.

The Introduction of the Advanced Chips Rule

In response to such loopholes, a new regulation was introduced. The Advanced Chips Rule, part of the latest round of China semiconductor export controls, aims to tighten these gaps. This rule imposes a worldwide licensing requirement based on the end user’s identity. It necessitates licensing for shipments to entities headquartered in certain regions, or whose ultimate parent company is headquartered in these areas, except for countries listed in Country Groups D:1, D:4, or D:5.

However, the rule does not clearly define what constitutes being “headquartered in” or an “ultimate parent company,” leaving some ambiguity in its application. To address this, the BIS has sought public comments on defining these critical terms, indicating an awareness of the need for clarity in enforcement.

Proposed Expansion of the EAR Entity List

A viable solution to tackle this challenge could be the expansion of the EAR Entity List. This expansion would encompass all subsidiaries or affiliates of companies like SenseTime that are known to U.S. authorities. By doing so, the loophole that allows companies to bypass restrictions through unlisted subsidiaries could be significantly narrowed.

Moreover, there is a pressing need for obligating exporters of controlled goods to conduct thorough due diligence. Such due diligence would involve identifying other subsidiaries associated with the listed entities. This measure would not only enhance the effectiveness of export controls but also promote greater responsibility and vigilance among exporters in their business operations.

Conclusion

The case of SenseTime highlights a fundamental challenge in the realm of international technology trade and export controls. While the introduction of the Advanced Chips Rule is a step in the right direction, the effectiveness of such regulations hinges on closing subsidiary loopholes and ensuring clear definitions and enforcement mechanisms. Expanding the EAR Entity List and mandating comprehensive due diligence by exporters are crucial steps in bolstering the effectiveness of these controls. As technology continues to advance and globalize, adapting and refining export control mechanisms is essential for maintaining international security and ethical standards in technology usage.

Analyzing the Impact and Implications of Microsoft’s Settlement over Export Control Violations

The Context of Microsoft’s Settlement with OFAC and BIS

In April 2023, a significant settlement was reached between Microsoft and two major U.S. regulatory bodies, the Office of Foreign Assets Control (OFAC) and the Bureau of Industry and Security (BIS). This settlement addressed Microsoft’s violations of export controls related to Russia and other sanctioned jurisdictions. Under the terms of the settlement, Microsoft agreed to pay $3.3 million, a figure that, while substantial, pales in comparison to the value of the illicit transactions involved and Microsoft’s operational scale.

The Scale of Violations and Financial Penalties

The violations, spanning a period of seven years, involved the export of software and services worth approximately $12 million to sanctioned individuals, entities, or countries. This case is a stark illustration of a broader issue in corporate compliance and ethics: the perception among companies that penalties for sanctions and export control violations are merely a cost of doing business. The discrepancy between the illicit gains from these transactions and the financial penalties imposed raises critical questions about the effectiveness of current enforcement mechanisms in deterring corporate misconduct.

Specific Details of Microsoft’s Violations

The violations by Microsoft encompassed several dimensions:

  • Sales activities were not limited to Russia but also involved countries like Cuba, Iran, and Syria.
  • Most violations, however, pertained to blocked Russian entities or individuals in Crimea.
  • A key issue was Microsoft’s lack of complete or accurate information on end users, particularly when sales were made through intermediaries, and the company’s failure to obtain necessary details from distributors or resellers.
  • Incidents were noted where Microsoft Russia employees deliberately bypassed internal controls to conceal the identity of end users. In one notable instance, employees used a pseudonym to facilitate orders for Stroygazmontazh, a Russian company designated by OFAC in 2014.
  • Microsoft’s screening systems showed significant shortcomings. For example, when Microsoft Ireland received end-user information from a distributor or reseller, internal systems were not equipped to ensure cross-database access to critical data like names, addresses, and tax IDs.
  • Microsoft also struggled to screen and reassess pre-existing customers following updates to OFAC’s SDN List and to implement measures to prevent continued dealings with SDNs or blocked persons.
  • The company’s screening systems failed to identify blocked parties not explicitly listed on the SDN List but owned 50 percent or more by SDNs. There was also a failure to recognize SDNs’ names in Cyrillic or Chinese scripts, despite receiving order and customer information in these languages from Russian and Chinese clients.

Policy Recommendations and Future Implications

The Microsoft settlement case underlines several areas for policy enhancement:

  • Enhanced Due Diligence Requirements: Corporations should be mandated to conduct more rigorous due diligence, particularly when dealing with intermediaries in sanctioned jurisdictions.
  • Robust Internal Control Systems: Companies need to develop more sophisticated internal control systems capable of identifying end users accurately, including those dealing through distributors or resellers.
  • Cross-Database Information Sharing: There is a need for improved information-sharing mechanisms within multinational corporations to ensure that data relevant to compliance is accessible across different branches and databases.
  • Up-to-Date Screening Protocols: Regular updates and reviews of screening protocols are essential, especially following changes to sanction lists.
  • Recognition of Non-Latin Scripts in Compliance Systems: Companies operating globally should incorporate capabilities to identify SDNs and blocked parties in non-Latin scripts, reflecting the linguistic diversity of global business operations.

The Microsoft case highlights the challenges multinational corporations face in navigating complex international sanctions and export control regulations. It also underscores the need for robust compliance systems and thorough due diligence processes. The disparity between the penalties imposed and the profits from illicit transactions calls for a reevaluation of enforcement strategies to ensure they serve as effective deterrents against corporate compliance violations. As global trade becomes increasingly interconnected, the ability of corporations to adhere to international legal standards becomes not just a matter of compliance, but also a significant factor in maintaining global economic and geopolitical stability.

Navigating the Complexities of Multilateral Export Controls in the Modern Era: The Wassenaar Arrangement and Beyond

Overview of Current Multilateral Export Control Regimes

Multilateral export control regimes, pivotal in shaping national export control policies, are predominantly guided by four frameworks: the Wassenaar Arrangement, the Nuclear Suppliers Group, the Australia Group, and the Missile Technology Control Regime. These regimes, encompassing a broad range of participating jurisdictions, aim to establish common control lists and practices, ensuring a coordinated approach to export controls globally. Notably, Russia’s membership in three of these four regimes has been a point of contention, especially given its role in the decision-making processes, akin to its position in the UN Security Council.

The Wassenaar Arrangement: Purpose and Evolution

The Wassenaar Arrangement, established as a voluntary export controls regime, facilitates member states’ exchange of information on transfers of conventional weapons and dual-use goods and technologies. Unlike its Cold War-era predecessor, CoCom, Wassenaar does not seek to limit exports to specific states but rather aims to prevent the acquisition of armaments and sensitive dual-use items for military end-uses in concerning situations or behaviors of states.

Post the 9-11 attacks, Wassenaar’s mandate expanded to include preventing acquisitions by individual terrorists and terrorist organizations. This expansion reflects the evolving nature of global security threats. Members are obliged to submit semi-annual notifications of arms transfers and report transfers or denials of certain controlled dual-use items, fostering transparency and collaborative monitoring.

Shortcomings and Challenges within the Wassenaar Arrangement

Despite its foundational role, Wassenaar faces several challenges:

  • Inflexible Update Mechanisms: Policies and control items lists are revised annually, lacking the agility to respond promptly to emerging threats or technological advancements.
  • Inability to Address Modern Security Challenges: The arrangement, conceptualized in the 1990s for WMD proliferation, struggles with modern security issues, partly due to Russia’s veto power.
  • Russia as a Compromised Partner: Russia’s track record of international law violations undermines its reliability as a partner in Wassenaar, challenging the regime’s efficacy in preventing the misuse of sensitive dual-use items.
  • Information Sharing Risks: Mandatory information sharing within Wassenaar potentially exposes sensitive defense capability data to Russia, raising security concerns.

Russia’s Role in Undermining Wassenaar Effectiveness

Russia’s participation in the Wassenaar Arrangement has been counterproductive, particularly in its stance on trade regulations of sensitive technologies crucial to its military actions, such as the war in Ukraine. This obstructionist approach mirrors Russia’s use of veto power in the UN Security Council, often to shield itself from international accountability. Russia’s recent blockade of updates to control lists of microelectronics and emerging technologies at the December 2022 meeting exemplifies this issue, creating significant loopholes in the technology export controls of about 40 states.

Proposal for a New Multilateral Treaty

In light of these challenges, there’s a growing call for a new binding multilateral framework. Drawing inspiration from CoCom, this framework would oversee the export controls of arms, dual-use goods, and sensitive technology concerning states like Russia and China, particularly those implicated in human rights violations or aggression contrary to the UN charter. Key features of this proposed treaty would include:

  • Binding Nature: Unlike Wassenaar’s voluntary approach, the new framework would enforce mandatory compliance.
  • Suspension or Exclusion of Rights: Foundational documents should permit the suspension or exclusion of a member state’s voting rights in cases of conduct violations, as determined by the UN General Assembly.
  • Focus on Perpetrators of Aggression and Human Rights Violations: The treaty would target states involved in gross human rights abuses or violating the prohibition of aggression under the UN charter.

The transformation of global security threats necessitates a reevaluation and restructuring of existing multilateral export control regimes. While the Wassenaar Arrangement has played a significant role in promoting cooperation and information exchange, its limitations in addressing contemporary security challenges and the disruptive role of states like Russia call for a more robust and responsive framework. The proposal for a new multilateral treaty, drawing lessons from both Wassenaar and CoCom, represents a proactive step towards ensuring more effective control of sensitive technologies in a rapidly evolving global landscape. This new treaty could serve as a vital instrument in maintaining international peace and security, especially in an era marked by complex geopolitical dynamics and technological advancements.


Appendix 1: Summary of Existing Export Controls Measures

United States

On 24 February 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR) to apply strengthened export control rules to Russia and Belarus including extended scope of the Foreign Direct Product (FDP) Rules. The EAR applies extraterritorially to items subject to the EAR and “follows the goods” anywhere in the world. The EAR regulates exports, re-exports, and in-country transfers of covered items globally, even if a transaction does not involve U.S. entities and takes place outside the U.S. Items subject to the EAR can include: items anywhere in the world produced or manufactured in the U.S.; items in or exported from the U.S., regardless of where they were manufactured; items manufactured outside the U.S. that include more than de minimis of controlled U.S.-origin content; items manufactured outside the U.S. that are the direct product of certain controlled U.S. technology or software, or are manufactured by a plant, or a major component of a plant, that is itself a direct product of such technology or software.

Therefore, an EAR license is required for the export, re-export, or transfer (in country) of all items subject to the EAR with Export Control Classification Numbers (ECCNs) on the Commerce Control List (CCL) to or within Russia and Belarus when the parties know, or have reason to know, that a foreign-produced item meeting the direct product criteria destined for Russia or Belarus or will be incorporated into or used for production/development of parts, components, or equipment that is produced in or destined for Russia or Belarus unless a license exception applies. License applications are subject to a policy of denial. In February 2022, the BIS issued a statement clarifying how the FDPR applies to Russia and Belarus.54 In February 2023, a new Iran Foreign Direct Product Rulewas published to address the use of Iranian unmanned aerial vehicles by Russia in its war against Ukraine.

BIS has five lists of parties of concern: (1) Denied persons list—a list of individuals and entities that have been denied export privileges; (2) Entity Llist—a list of foreign parties that are prohibited from receiving some or all controlled items unless export license is granted. License applications in this case are normally subject to policy of denial; (3) Unverified List—a list of parties whose bona fides BIS has been unable to verify. No license exceptions may be used for exports, reexports, or transfers (in-country) to unverified parties; (4) Military End User List—a list of foreign parties that are prohibited from receiving controlled items unless export license is granted. The Military End User List is not exhaustive, and, according to BIS position exporters, re-exporters, or transferors must conduct their own due diligence for entities not identified as military end users; (5) Consolidated Screening List—a searchable and downloadable file that consolidates export screening lists of the Departments of Commerce, State and the Treasury into one document.

In June 2022, BIS announced the reformed and enhanced administrative enforcement program, whereby, on February 16, 2023, the Department of Justice (DOJ) and Commerce Department announced the creation of the Disruptive Technology Strike Force with a mission to prevent nation-state “adversaries” including Russia from acquiring “disruptive” technologies. The strike force will bring together the DOJ’s NSD, BIS, the Federal Bureau of Investigation, Homeland Security Investigations, and 14 US Attorneys’ Offices in 12 metropolitan regions. According to the official press release, the strike force’s work will focus on investigating and prosecuting criminal violations of export laws, enhancing administrative enforcement of U.S. export controls, fostering partnerships with the private sector, leveraging international partnerships to coordinate law enforcement actions and disruption strategies, utilizing advanced data analytics and all-source intelligence to develop and build investigations, conducting regular trainings for field offices, and strengthening connectivity between the strike force and the Intelligence Community.


54 “To restrict Russia and Belarus’ abilities to acquire certain foreign-produced items, the Russia/Belarus FDP rule establishes a control over foreign-produced items that are: (i) the direct product of certain U.S.-origin software or technology subject to the EAR; or (ii) produced by certain plants or major components thereof which are themselves the direct product of certain U.S.-origin software or technology subject to the EAR. This control applies when it is known that the foreign-produced item is destined to Russia or Belarus or will be incorporated into or used in the production or development of any part, component, or equipment produced in or destined to Russia or Belarus” U.S. Department of Commerce & BIS Russia and Belarus Rule Fact Sheet.


In June 2023, it was announced that the U.S. and its partners in the Five Eye initiative—Australia, Canada, New Zealand, and the United Kingdom—will formalize coordination and information sharing on export controls enforcement to restrict Russia’s access to technologies. Additionally the U.S. established a framework of allied partner export controls against Russia and Belarus, which includes 38 jurisdictions such as EU member states, the U.K., and Taiwan. According to Supplement No. 3 to Part 746,the listed countries have committed to implementing substantially similar export controls on Russia and Belarus under their domestic laws and are consequently excluded from certain requirements of U.S. export controls.

European Union

In the EU, export control rules are provided by both EU legislation and member state regulations stipulated at a national level. Export control rules are enforced at the national level, leading to certain variations in their practical application. The general framework for dual-use export controls in the EU is provided for by the EU Dual-Use Regulation. It stipulates EU-wide rules that are directly applicable in all EU member states, including controls on specifically listed dual-use items and in respect of exports relating to controlled end use, as well as general provisions for granting individual and global export licenses (“authorizations”). As to enforcement, the dual-use regulation instructs Member States to take appropriate measures to ensure proper enforcement, including penalties that are effective, proportionate and dissuasive. Export controls in relation to military Items are controlled by EU member states individually. There is an EU common military list, which is adopted annually by the Council, pursuant to Council Common Position 2008/944/CFSP defining common rules governing the control of exports of military technology and equipment. However, this list is non-binding, and it is within the competence of the member states to legislate for national military export controls.

Specific export restrictions with regard to Russia are set forth by Council Regulation (EU) No. 833/2014, which stipulates restrictions on the sale, supply, transfer, or export of a large number of listed items to any natural or legal person, entity or body in Russia or for use in Russia. The covered items include: dual-use items as listed in Annex I to Regulation (EU) No. 2021/821 of the European Parliament and of the Council (EU Dual Use Regulation); energy-related items as listed in Annex II to Council Regulation (EU) No. 833/2014; items “which might contribute to Russia’s military and technological enhancement, or the development of the defense and security sector” as listed in Annex VII to Council Regulation (EU) No. 833/2014; products for use in oil refining and liquefaction of natural gas as listed in Annex X to this Regulation; items aimed for use in aviation or the space industry as listed in Annex XI to this Regulation; maritime navigation and radio-communication items as listed in Annex XVI to this Regulation; luxury goods as listed in Annex XVIII to this Regulation (items valued above EUR 300 per item); jet fuel and fuel additives as listed in Annex XX to this Regulation; an extensive list of items “which could contribute in particular to the enhancement of Russian industrial capacities” as listed in Annex XXIII to this Regulation; banknotes denominated in any official currency of an EU Member State; and firearms, their parts and essential components and ammunition as listed in Annex I to Regulation (EU) No. 258/2012 of the European Parliament and of the Council (EU Firearms Regulation) and firearms and other arms as listed in Annex XXXV to Council Regulation (EU) No. 833/2014.

There are also express prohibitions on (i) the provision of technical assistance, brokering services and other services, (ii) the provision of financing or financial assistance and (iii) selling, licensing or transferring in any other way intellectual property rights or trade secrets as well as granting rights to access or re-use any material or information protected by means of intellectual property rights or constituting trade secrets, related to the listed items to any natural or legal person, entity or body in Russia or for use in Russia. Further, there is a prohibition on providing technical assistance, brokering services and financing or financial assistance related to the goods and technology listed in the EU Common Military List. The EU established the provisions with regard to the intellectual property of EU entities or persons in the context of the Russia export controls regime with its 11th sanctions package, enacted in June 2023.

United Kingdom

The UK export control regime comprises the Export Control Act 2002 and the Export Control Order 2008. Due to the UK’s withdrawal from the EU, Council Regulation (EC) 428/2009 became retained legislation under the EU Withdrawal Act 2018, while the EU Dual-Use Regulation applies to the export, brokering, technical assistance, transit and transfer of dual-use items from the UK. The UK legislation restricts the export, supply, delivery or making available of listed items to or for use in Russia or to a person “connected with Russia.” The relevant items include: military goods as listed in Schedule 2 to the Export Control Order 2008; defense and security goods according to Schedule 3C of the Russia Sanctions Regulations 2019; dual-use goods and technology as listed in Council Regulation (EC) No 428/2009 of 5 May 2009; critical-industry goods and technology as listed in Schedule 2A of the Russia Sanctions Regulations; aviation and space items according to Schedule 2C of the Russia Sanctions Regulations; oil refining goods and technology according to the Schedule 2D of the Russia Sanctions Regulations; quantum computing and advanced materials goods and technology as listed in Schedule 2E of Russia Sanctions Regulations; energy-related items according to Part 2 of Schedule 3 of the Russia Sanctions Regulations; luxury goods as listed in Schedule 3A of the Russia Sanctions Regulations; items identified as “G7 dependency and further goods list goods”, according to Schedule 3E of the Russia Sanctions Regulations.

On 13 December 2022, the UK Export Control Joint Unit published a compliance code of practice for export licensing. The code is voluntary and intended to provide best practice guidance on how to develop export control compliance procedures. It outlines the following practical steps: committing to compliance; nominating responsible personnel; informing and training staff; developing company compliance procedures; handling suspicious enquiries or orders; record-keeping; provision for audits.

The Department for Business and Trade issued guidance related to the risks of circumventing UK trade sanctions. It outlines that exporters should conduct “strong due diligence on counterparties […] in relation to sanctions,” and, for continuing contracts, to repeat due diligence “at intervals to ensure that the risk has not changed.” The guidance also lists examples of “Key Risk Indicators,” based on customer, product and location, and indicates that exporters should adapt due diligence and compliance procedures considering risks identified.

Appendix 2: Definition of “Battlefield Goods” and “Critical Components”

HS codes included in “battlefield goods”

Tier 1 (4)

8542.31Electronic integrated circuits: Processors and controllers, whether or not combined with memories, converters, logic circuits, amplifiers, clock and timing circuits, or other circuits
8542.32Electronic integrated circuits: Memories
8542.33Electronic integrated circuits: Amplifiers
8542.39Electronic integrated circuits: Other

Tier 2 (5)

8517.62Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus
8526.91Radio navigational aid apparatus
8532.21Other fixed capacitors: Tantalum capacitors
8532.24Other fixed capacitors: Ceramic dielectric, multilayer
8548.00Electrical parts of machinery or apparatus, not specified or included elsewhere in chapter 85

Tier 3.A (16)

8471.50Processing units other than those of subheading 8471.41 or 8471.49, whether or not containing in the same housing one or two of the following types of unit: storage units, input units, output units
8504.40Static converters
8517.69Other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network
8525.89Other television cameras, digital cameras and video camera recorders
8529.10Aerials and aerial reflectors of all kinds; parts suitable for use therewith
8529.90Other parts suitable for use solely or principally with the apparatus of headings 8524 to 8528
8536.69Plugs and sockets for a voltage not exceeding 1 000 V
8536.90Electrical apparatus for switching electrical circuits, or for making connections to or in electrical circuits, for a voltage not exceeding 1000 V (excl. fuses, automatic circuit breakers and other apparatus for protecting electrical circuits, relays and other switches, lamp holders, plugs and sockets)
8541.10Diodes, other than photosensitive or light-emitting diodes (LED)
8541.21Transistors, other than photosensitive transistors with a dissipation rate of less than 1 W
8541.29Other transistors, other than photosensitive transistors
8541.30Thyristors, diacs and triacs (excl. photosensitive semiconductor devices)
8541.49Photosensitive semiconductor devices (excl. Photovoltaic generators and cells)
8541.51Other semiconductor devices: Semiconductor-based transducers
8541.59Other semiconductor devices
8541.60Mounted piezo-electric crystals

Tier 3.B (9)

8482.10Ball bearings
8482.20Tapered roller bearings, including cone and tapered roller assemblies
8482.30Spherical roller bearings
8482.50Other cylindrical roller bearings, including cage and roller assemblies
8807.30Other parts of aeroplanes, helicopters or unmanned aircraft
9013.10Telescopic sights for fitting to arms; periscopes; telescopes designed to form parts of machines, appliances, instruments or apparatus of this chapter or Section XV
9013.80Other optical devices, appliances and instruments
9014.20Instruments and appliances for aeronautical or space navigation (other than compasses
9014.80Other navigational instruments and appliances

Tier 4 (11)

8471.80Units for automatic data-processing machines (excl. processing units, input or output units and storage units)
8486.10Machines and apparatus for the manufacture of boules or wafers
8486.20Machines and apparatus for the manufacture of semiconductor devices or of electronic integrated circuits
8486.40Machines and apparatus specified in note 11(C) to this chapter
8434.00Printed circuits
8543.20Signal generators
9027.50Other instruments and apparatus using optical radiations (ultraviolet, visible, infrared)
9030.20Oscilloscopes and oscillographs
9030.32Multimeters with recording device
9030.39Instruments and apparatus for measuring or checking voltage, current, resistance or electrical power, with recording device
9030.82Instruments and apparatus for measuring or checking semiconductor wafers or devices

HS codes included in “critical components”

Automotive components and equipment (83)

840710000384112100098412298909850131000085111000098708705009
840721100084118100018412310009850132000885113000088708709909
840721910084118100088412390009850133000885114000088708803509
840721990084119100018412808009850134000085115000088708805509
840729000084119100028412904008850140200485118000088708809909
840732100084119100088412908009850140200985119000098708913509
840734300984119900198479899707850140800987081090098708919909
840820990784119900918479907000850151000187082990098708923509
840890650084119900988501101001850151000987083091098708939009
840890670084122120028501101009850152200187083099098708943509
840991000884122120098501109100850152200987084050098708949909
840999000984122180088501109300850152300087084091098708999309
841111000184122920098501109900850161700087084099098708999709
84111230098412298109850120000985016200008708509909 

Bearings and transmission shafts (31)

848210100984825000098483105000848340210084834090008483908909
84821090018482800009848310950084834023088483502000 
84821090088482990000848320000084834025008483508000 
84822000098483102108848330320984834029008483602000 
84823000098483102509848330380984834030098483608000 
84824000098483102909848330800784834059008483908100 

Communications equipment (80)

851718000085219000098523499900852380930085269200088529106500
851761000285232100008523511000852380990085271399008529106901
851761000885232915058523519101852550000085271900008529106909
851762000285232915098523519109852560000985272120098529108000
851762000385232931028523519300852581910085272159098529109500
851762000985232939018523519900852581990085272198008529902002
851769900085232939088523529001852589190085272900098529906502
851770900985234190008523529009852589300085279119008529906508
851771110085234925008523591000852589910985279135008529906509
851771150085234939008523599101852589990085279199008529909600
85177119008523494500852359910985261000018527921000 
85177900018523495100852359930085261000098527990000 
85177900098523495900852359990085269120008529101100 

Computer components (15)

84714100008471703000847170800084719000008473308000
84715000008471705000847170980084733020028473502000
84717020008471707000847180000084733020088473508000

Drones (5)

88062200018806920001880720000088073000008807900009

Electric and electronic equipment (159)

850410200085049092008532100000853610500085367000048544190009
850410800085049098008532210000853610900085369001008544200000
850421000085051100008532220000853620100785369010008544300002
850422900085051910008532230000853620900785369085008544300003
850423000985051990008532240000853630200085371010008544300007
850431210985052000008532250000853630400085371091008544421000
850431290985059020098532290000853630800085371098008544429003
850431800185061011008532300000853641100085371099008544429007
850431800785061018018532900000853641900085372092008544429009
850432000285061018098533100000853649000085372098008544492000
850432000985061091008533210000853650040085381000008544499101
850433000985061098098533290000853650060085389012008544499108
850434000085064000008533310000853650070085389092008544499309
850440300485065010008533390000853650110985389099018544499501
850440300885065030008533401000853650150985389099088544499509
850440300985065090008533409000853650190485402080008544499900
850440550085066000008533900000853650190685407100018544601000
850440830085068080008534001100853650800885407100098544609009
850440850085071020038534001900853661100085408100008544700000
850440870085072020008534009000853661900085408900008545110089
850440900085072080018535100000853669100085432000008545200009
850440910085072080088535210000853669300085434000008545909000
850450200085073020098535290000853669900285437030088548009000
850450950085075000008535302000853669900885437080008549990000
85049006008507600000853540000085367000018543709000 
85049011008507800001853590000885367000028543900000 
85049017008507800009853610100085367000038544119000 

Navigation equipment and sensors (62)

900211000090148000009025804000902680200090303200099032102000
900219000090149000009025808000902680800090303310009032108100
900220000090151010009025900003902690000090303391009032108900
900290000990151090009025900008902750000090303399009032200000
901320000090153090009026102100902910000990303900099032810000
901380000090154010009026102900902920310990304000009032890000
901390000090159000009026108100902920380990308200009032900000
90141000009025118000902610890090299000099030840009 
90142020099025192000902620200090301000009030893000 
90142080019025198009902620400090302010009030899009 
90142080099025802000902620800090303100009030908500 

Semiconductors (37)

854110000185414100048541490000854231901085423261008542399090
854110000985414100068541510000854231909085423269008542900000
85412100008541410007854159000085423210008542327500 
85412900008541410008854160000085423231008542329000 
85413000098541410009854190000085423239008542339000 
85414100018541420000854231100185423245008542391000 
85414100028541430000854231100985423255008542399010 

Other components 13)

84862090099024809000903180340090318098009031908500
8486901000902490000090318038009031902000 
8486909008903149900090318091009031903000 

Appendix 3 – SUMMARY OF DYNAMICS ON DIFFERENT STAGES OF THE SUPPLY CHAIN

Russian imports in January-October 2023 by country of producer

Battlefield goods

RankCountryValueShare
1China3,60044.6%
2United States2,23727.7%
3Taiwan6127.6%
4Germany2593.2%
5Hong Kong1812.2%
6Switzerland1702.1%
7Japan1331.6%
8Malaysia1221.5%
9South Korea760.9%
10Netherlands750.9%

Critical components

RankCountryValueShare
1China9,15741.2%
2United States3,35315.1%
3Taiwan1,0374.7%
4Germany8133.7%
5Japan5152.3%
6South Korea4502.0%
7Hong Kong3091.4%
8Switzerland3001.4%
9Malaysia1530.7%
10India1510.7%

Russian imports in January-October 2023 by country of origin

Battlefield goods

RankCountryValueShare
1China5,52863.1%
2Taiwan6998.0%
3Malaysia5135.8%
4United States3754.3%
5Vietnam2192.5%
6Germany1481.7%
7South Korea1201.4%
8Thailand1031.2%
9Philippines991.1%
10Hong Kong991.1%

Critical components

RankCountryValueShare
1China13,04358.7%
2Taiwan1,1185.0%
3Germany8653.9%
4United States8363.8%
5Malaysia6763.0%
6South Korea6623.0%
7Turkey5272.4%
8Japan4692.1%
9Italy4602.1%
10Vietnam4021.8%

Russian imports in January-October 2023 by country of seller

Battlefield goods

RankCountryValueShare
1China3,32838.0%
2Hong Kong2,70630.9%
3Turkey6046.9%
4UAE2933.3%
5Switzerland1862.1%
6Serbia1711.9%
7Slovak Republic1381.6%
8Taiwan1151.3%
9Kyrgyz Republic981.1%
10Thailand780.9%

Critical components

RankCountryValueShare
1China8,65138.9%
2Hong Kong4,02418.1%
3Turkey,8708.4%
4UAE9324.2%
5South Korea5032.3%
6Serbia3901.8%
7Switzerland3881.7%
8Kyrgyz Republic3051.4%
9Germany2881.3%
10Italy2581.2%

Russian imports in January-October 2023 by country of dispatch

Battlefield goods

RankCountryValueShare 
1China4,66553.2% 
2Hong Kong1,99222.7% 
 3Turkey4655.3%
 4UAE4425.0%
 5Thailand2152.5%
 6Maldives1221.4%
 7Malaysia1051.2%
 8Taiwan1001.1%
 9India800.9%
 10South Korea750.8%

Critical components

RankCountryValueShare 
1China11,91653.8% 
2Hong Kong2,85312.9% 
 3Turkey1,8248.2%
 4UAE8163.7%
 5South Korea5502.5%
 6Thailand3391.5%
 7Germany2931.3%
 8India2581.2%
 9Poland2511.1%
 10Maldives2501.1%

Appendix 4: Subset of Companies for Analysis in Section II.4.

Company (parent company)CountryCompany (parent company)Country
Actel (Microchip Technology)U.S.Delta ElectronicsTaiwan
Adesto TechnologiesU.S.Deyuan TechnologyChina
ADLINKTaiwanDFRobot ElectronicsChina
Advanced Micro DevicesU.S.Digi InternationalU.S.
Advanced Monolithic SystemsU.S.DMP ElectronicsTaiwan
Advanced Technology InternationalU.S.Dragon City IndustriesH. Kong
AimtecCanadaDynalogicNetherl.
Alfa RparLatviaDynatronU.S.
AlinxChinaEaton CorporationIreland
All SensorsU.S.Ebm-papstGermany
Allegro Micro SystemsU.S.EPCOS (TDK Corporation)Japan
Alliance MemoryU.S.Epson (Seiko Epson)Japan
Altera Corporation (Intel Corporation)U.S.E-Tech ElectronicsH. Kong
Amphenol Aerospace (Amphenol)U.S.Eudyna DevicesU.S.
AmpleonNetherl.Everlight ElectronicsTaiwan
Amplus CommunicationTaiwanFairchild Semiconductor (Onsemi)U.S.
Analog DevicesU.S.Faithful Link IndustrialTaiwan
Anaren (TTM Technologies)U.S.FLIR Systems (Teledyne Technologies)U.S.
Anderson ElectronicsU.S.Freescale Semiconductor (NXP)Netherl.
ApacerTaiwanFujitsuJapan
Apem (IDEC Corporation)JapanFutaba CorporationJapan
Apex MicrotechnologyU.S.Future Technology Devices Int.U.K.
ATMEL (Microchip Technology)U.S.Gennum CorporationCanada
AXICOMSwitzerl.GLEAD ElectronicsChina
Axis Communications (Canon)JapanGlenairGermany
BCD Semiconductor (Diodes Incorp.)U.S.GlobalSat WorldComTaiwan
Bel Power Solutions (Bel Fuse)U.S.Golledge ElectronicsU.K.
BolyminTaiwanGreenliant SystemsU.S.
BombardierCanadaGuangzhou Kexin Ind. (Kexin Electr.)China
BournsU.S.Gumstix (Altium)U.S.
Broadcom CorporationU.S.HALO ElectronicsU.S.
Burr Brown (Texas Instruments)U.S.HartingGermany
C&K (Littelfuse)U.S.Hemisphere GNSS (CNH Industrial)U.K.
CADDOCKU.S.Hirose ElectricJapan
CanonJapanHitachiTaiwan
Catalyst SemiconductorU.S.Hitano EnterpriseTaiwan
CervozTaiwanHiTec RCDU.S.
CirocommTaiwanHittite Microwave Corp. (Analog Dev.)U.S.
Clare (Littelfuse)U.S.Holt Integrated CircuitsU.S.
CML MicrocircuitsU.K.Honeywell InternationalU.S.
CoilcraftU.S.HongfaChina
Coiltronics (Eaton Corporation)IrelandHewlett PackardU.S.
ConnflyTaiwanIC-HausGermany
Cortina Systems (Marvell Technology)U.S.IEI GroupTaiwan
CTS CorporationU.S.iFlightChina
Cypress Semiconductor (Infineon)GermanyIllinois Capacitor (Cornell Dubilier)U.S.
Company (parent company)CountryCompany (parent company)Country
Inchange Semiconductor CompanyChinaNew Japan Radio (Nisshinbo)Japan
Infineon TechnologiesGermanyNew Jersey SemiconductorU.S.
Integrated Circuit Systems (Renesas)JapanNexperie (Wingtech)China
Integrated Device Tech. (Renesas)JapanNGK Spark PlugJapan
Integrated Silicon SolutionsU.S.Nic Components CorporationU.S.
Intel CorporationU.S.NICOMATICFrance
International Rectifier (Infineon)GermanyNihon Dempa KogyoJapan
ISSI (Integrated Silicon Solutions)U.S.Nippon (NEC)Japan
IXYS (Littelfuse)U.S.NLT TechnologiesU.S.
JST ElectronicsSingaporeNumonyx (Micron Technology)U.S.
Kemet Electronic Components (Yageo)TaiwanNVE CorporationU.S.
Kingston Technology CorporationU.S.NvidiaU.S.
KodenshiJapanNXP SemiconductorsNetherl.
KyoceraJapanOMRONJapan
LantronixU.S.OnsemiU.S.
Lattice SemiconductorU.S.PanasonicJapan
L-comU.S.Peak ElectronicsGermany
LG CorporationKoreaPhilipsNetherl.
Ligitek ElectronicsTaiwanPhoenix ContactGermany
LINAKDenmarkPicor Corporation (Vicor)U.S.
Linear TechnologyU.S.Planar Systems (Leyard)China
Lite-On TechnologyTaiwanPLX Technology (Broadcom)U.S.
LittelfuseU.S.PMC-Sierra (Microchip Technology)U.S.
MACOMU.S.Power Mate TechnologyU.S.
MacronixTaiwanPulse Electronics (Yageo)Taiwan
Marvell Semiconductor (Marvell)U.S.Qingdao Thundsea Marine Tech.China
Maxim Integrated (Analog Devices)U.S.QorvoU.S.
Maxwell TechnologiesU.S.QST CorporationChina
Mercury ElectronicsU.S.QuectelChina
Merrimac IndustriesU.S.QuintechGermany
MichelinFranceRamtron International (Infineon)Germany
Micrel Semicond. (Microchip Tech.)U.S.Raspberry PiU.K.
Micro Crystal (Swatch Group)Switzerl.RealtekTaiwan
Microchip TechnologyU.S.Renesas ElectronicsJapan
Micron TechnologyU.S.RF Micro Devices (Qorvo)U.S.
MikroTikLatviaRicci MicrowaveKorea
Mini-CircuitsU.S.RIFAChina
Mitsubishi Electric (Mitsubishi)JapanRN2 TechnologiesKorea
Molex Electronics (Koch Industries)U.S.Rochester ElectronicsU.S.
MornsunChinaRogers CorporationU.S.
Mouser Electronics TTI)U.S.ROHM SemiconductorJapan
MurataJapanRotax (Bombardier)Canada
Nanya TechnologyTaiwanRuncamH. Kong
National Semicond. (Texas Instr.)U.S.SafeNet (Thales)France
Nelson Digital DevicesH. KongSafranFrance
NetSolU.S.SamsungKorea
NetzerIsraelSanDiskU.S.
New CentressTaiwanSawtek (Qorvo)U.S.
Company (parent company)CountryCompany (parent company)Country
Scorpion Power SystemsH.KongThalesFrance
Semelab (TT Electronics)U.K.Thinki SemiconductorChina
Semiconductor Comp. Ind. (Onsemi)U.S.Ti Automotive (TI Fluid Systems)U.K.
SemtechU.S.Token Electronics IndustryTaiwan
Silex Technology (Murata)JapanTOREXJapan
Silicon LaboratoriesU.S.ToshibaJapan
Silicon Sensing SystemU.K.TP-LinkChina
Silicon Storage Tech. (Microchip Tech.)U.S.TracoSwitzerl.
SIMComChinaTranscendTaiwan
Sipex CorporationU.S.TriQuint Semiconductor (Qorvo)U.S.
Sirenza MicrodevicesU.S.TT ElectronicsU.K.
Skyworks SolutionsU.S.TTM TechnologiesU.S.
SMART Global HoldingsKyrgyz R.Tyco ElectronicsSwitzerl.
SMC CorporationJapanU-bloxSwitzerl.
SMC Diode SolutionsChinaUIYChina
SMSC (Microchip Technology)U.S.UN SemiconductorTaiwan
SonitronBelgiumUnisonic TechnologiesTaiwan
SonyJapanVbsemiTaiwan
Souriau (Eaton Corporation)IrelandVicorU.S.
Spansion (Infineon Technologies)GermanyVishayU.S.
STMicroelectronicsSwitzerl.VisionhitechKorea
Sumida CorporationJapanVoltage MultipliersU.S.
SwitronicTaiwanWeigaoChina
SynoceanTaiwanWinbondTaiwan
Tai-Saw TechnologyTaiwanWIZnetIndia
TSMCTaiwanWolfspeedU.S.
TallysmanU.S.Won-Top ElectronicsTaiwan
TaoglasIrelandWurth ElectronicsGermany
TDK CorporationJapanXilinx (Advanced Micro Devices)U.S.
TE ConnectivitySwitzerl.XP PowerSingapore
TechWell CorporationU.S.YageoTaiwan
TelpodPolandYXCChina
TengfeiChinaZ-CommunicationsU.S.
Texas InstrumentsU.S.Zilog (Littelfuse)U.S.

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