Using the Financial System to Enforce Export Controls

Soon after Russia’s full-scale invasion of Ukraine in mid-2022, Russian imports of battlefield goods subject to export controls have sharply risen, reaching levels close to those prior to Russia’s military intervention. This surge, which includes items from Western producers, highlights ongoing challenges in enforcing export controls and preventing the flow of critical components to Russia’s military industry. Imports are facilitated through channels in mainland China, Hong Kong, Turkey, and the United Arab Emirates. Additionally, countries like Armenia, Georgia, Kazakhstan, and the Kyrgyz Republic have also experienced significant increases in imports from EU and coalition countries, likely destined for Russia.

Benjamin Hilgenstock and Anna Vlasyuk from the KSE Institute, and Elina Ribakova and Guntram B. Wolff from Bruegel have written a working paper that explores how battlefield products banned under the existing sanctions regime continue to reach Russia. A significant portion of these goods originates from companies headquartered in sanctioned countries, and they are often routed through third countries with multiple intermediaries involved in the process. Despite efforts to restrict imports, foreign components in Russian weapons primarily come from Western companies, indicating that substitution is not readily achievable.

Learn more about the role of export controls, the challenges of export control implementation, and the financial system’s role in improving export controls in the latest working paper published by the experts from FREE Network sister institute – KSE Institute and Bruegel (see here).