Using the Financial System to Enforce Export Controls
A new Bruegel working paper shows how Russia’s export controls could work better if banks and firms play a larger role. Despite sweeping sanctions, Russia’s imports of “battlefield goods” bounced back close to pre-invasion levels in 2023. To close loopholes, the authors suggest bank-style due diligence for lenders and manufacturers. This approach could choke off illicit tech flows more effectively.
Why Export Controls Matter Now
Russia still gets critical microelectronics and navigation gear through complex routes. In 2023, it imported $12.5 billion of high-priority items, just 2% below pre-war levels. Import patterns shifted. Mainland China accounted for 56.3% and Hong Kong for 19.3%. Meanwhile, Turkey rose to 5.7% and the UAE to 4.2%.
In addition, 40% of these goods are produced for companies headquartered in sanctioning countries. Even more striking, 95% of identifiable foreign parts in Russian weapons still come from Western producers. These figures show why tighter export controls remain urgent.
What the Study Set Out to Do
The authors asked why current export controls underperform. As a solution, they outline a practical plan. First, banks should identify and block suspicious trade payments. Second, non-financial firms should adopt “know your customer” checks across their distributor networks. Together, these steps would help reduce illicit flows.
Key Research Findings
- Russia’s battlefield goods imports rebounded quickly after spring 2022 and are again near pre-invasion levels.
- Third-country hubs, especially China and Hong Kong, now dominate shipment routes, as shown in the report’s charts.
- Western technology remains embedded. Forty percent of the import value is tied to coalition producers. Moreover, 95% of foreign parts in Russian weapons are Western.
- Leveraging banks’ AML/CFT systems and tightening disclosure, such as item descriptions and HS codes, would make export controls stronger.
What This Means
In practice, turning banks into frontline enforcers could flag risky payments before goods move. For example, trade finance documents often reveal items and counterparties. Furthermore, extending similar diligence to manufacturers, backed by penalties for negligence, would close loopholes. As a result, sensitive parts would find it harder to reach Russia. Finally, stronger guidance and wider data sharing are essential to make export controls credible.
Read the Full Report
Learn more about the role of export controls, the challenges of implementation, and the financial system’s contribution in the latest working paper from KSE Institute and Bruegel.
Meet the Researchers
- Benjamin Hilgenstock: KSE Institute.
- Elina Ribakova: Bruegel.
- Anna Vlasyuk: KSE Institute.
- Guntram Wolff: Bruegel.
