When Western countries imposed sanctions on Russia after invading Ukraine, the export of Western technology to Russia was effectively banned — at least on paper.
But through a web of third parties, Russia still finds ways to circumvent sanctions and import critical components for weapons and other technology.
In the United States, personal sanctions prohibit American citizens and companies from doing business with certain Russian individuals and companies. Other sanctions prevent them from doing business with entire industries. Secondary sanctions can be imposed on non-US companies caught violating US bans.
A special permit is required for the export of high-tech products to Russia. These are only issued in exceptional cases, if at all. The largest manufacturers of microelectronics – Analog Devices, Texas Instruments and others – have all ceased their commercial activities in Russia.
Nevertheless, products from these companies are increasingly being found in the remains of Russian drones and missiles.
Components continue to enter Russia through a chain of intermediate companies in different countries. For example, an American company can buy them from a manufacturer and then sell them to a Chinese company, which in turn can sell them to a Russian middleman not formally affiliated with the defense complex – who then passes the goods on to the weapons manufacturers.
On the Russian independent media site Vazhnye Istorii (“Key Stories”), defense expert Eric Woods of the James Martin Center for Nonproliferation Studies examines how these systems work.
Legal loopholes in export
It is important to distinguish between sanctions and export controls. People often think they are one and the same, and in terms of their functions that is true, but sanctions and export controls use different mechanisms to control goods. There are many overlapping rules, and these rules are written in a way that even Americans cannot understand.
Consumer electronics are not subject to export controls.
If I am a US citizen and want to export something to Russia, I need to check whether the goods are subject to export controls. All goods subject to export controls are dual-use goods (iethey can be used for civil and military purposes), but not all dual-use items are subject to export controls. Here is the first confusion.
Consumer electronics are not subject to export controls. But it all depends on the context and who the end user will be. If my grandmother ordered electronics, it would be legal, but if the buyer were a Russian military company, it wouldn’t be.
We have many sanctions but there is not enough understanding of how they work. The laws are so complex that it is difficult for customs officials at the airport or port to understand them all.
Smugglers take advantage of this. It is by no means difficult to circumvent sanctions.
It’s what your customers do
If the military or the secret services want to procure components that are subject to export controls, they usually obtain them through intermediaries. It’s often a difficult and tedious process, and it makes goods more expensive, but if customers have the time, energy, and resources, they will.
American companies can easily say, “We don’t ship to Russia, we don’t ship to Iran, we don’t ship to North Korea.” And it’s true, they don’t. But their clients can, and often do.
The manufacturer wants to make money and not spend millions of dollars verifying every customer or business that comes in. If someone walks in and says, “Here’s a million dollars, I need a product,” don’t ask any questions.
For example, an American company sold computer equipment directly to a Russian company that produces launchers for the S-400 anti-aircraft missile system. The company’s compliance department told its bosses, “We can’t do that, it’s a missile factory in Moscow.” But they ignored the warning because the job was big.
The Washington Post reported last October on another example of an American company making hypersonic missiles for the Pentagon. They sold the technology to a company in the US, that company to another, and now this technology is being used in Chinese weapons.
It is difficult to verify everything when so many intermediaries are involved. But companies should and must ask questions.
A well-established scheme
The system of using third countries for access to goods under export control has existed since Soviet times. There are documents and studies from the 1970s and 1980s that the Soviet Union received a great deal of computer equipment and electronics from the United States.
Already in Stalin’s time, an international coordination committee for export controls was created to ensure that dual-use technologies did not get into the USSR. However, third countries such as Finland traded with both sides, undermining the Committee’s objectives.
Until last February 24th, there were many cases where prohibited goods were imported, for example via Finland or Estonia. Today, of course, they don’t cross the border – Estonia and Finland are now desperately trying to make their borders with Russia more secure. Instead, in places like Taiwan and Hong Kong, we see attempts to do similar third-party deals with Russia.
Do sanctions work?
Many studies show that the Russian defense complex has been in complete disarray since 2014. sanctions work. There is no doubt about it. The cases of sanctions evasion that come to our attention are success stories of smugglers.
Of course, there are businessmen who use sanctions as an opportunity and ship millions of dollars worth of military components to Russia. But are these supplies sufficient? We don’t know for sure yet.
The United States would need the help of China, Malaysia, Indonesia and all countries that produce sanctioned components to combat sanctions violators. But it’s almost impossible. Why would China want to help America fight Russia?
It would cost a lot of money to move microchip production to more loyal countries. It is economically more profitable to produce components in Malaysia, Indonesia and other countries than on domestic soil. Only the most advanced components are made in the USA
Secondary sanctions should matter to smaller countries doing business with Russia. If I were a Taiwanese company, I would be concerned. Americans have plenty of money and they are willing to spend it in Taiwan. From an economic point of view, losing the American market would be terrible. Businesses in mainland China might also be concerned, but it depends on who they consider their main customer.
Low quality weapons
Missiles will hit civilians if you use inaccurate weapons in populated areas. Missiles, especially those designed and built during the Cold War, are not as accurate as the military claims, although they were improved under Putin. This may be due to inattention, lack of information about the target, for example, when using old Soviet maps, or political pressure to launch. We saw that several times during the war.
If Russia lost Western technology, they would be left with 1970s-era weapons.
Americans have what they call Combat Damage Assessment – when the military checks they’re hitting what they wanted. Whether this will happen to the same extent in Russia remains to be seen, but when these reports are falsified like others to tell the authorities what they want to hear, that is very bad. In this sense, the human factor plays a greater role than electronics.
But even if Russia lost Western technology, they would be left with 1970s-era weapons.
Will Russia Replace Western Technology?
Even in the days of the USSR, Russian microchips lagged far behind American technology, often copying US developments rather than developing their own chips. I can’t imagine Putin being able to change that, especially now.
Even when the West imposed sanctions back in 2014, Russian arms manufacturers don’t seem to have replaced foreign components in their weapons. While a huge amount of money was allocated to the defense complex to solve this problem, the money just disappeared.
As for replacing Western components with Chinese ones, many US chips are part of complex supply chains involving companies with offices in China. Some of them are already Chinese. Whether the Russian defense complex can switch to electronics designed exclusively by China is unclear.
Russia’s microelectronics manufacturing capabilities lag behind even a country like Malaysia by decades. The equipment needed to set up your own production is large, heavy, difficult to hide and difficult to sneak in. Perhaps Russia can buy used equipment. Or maybe the Chinese semiconductor market is evolving. Anyway, Putin had two decades to build the semiconductor industry – and his attempts were about as successful as his war.
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Source: worldcrunch.com
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