Russian tools to evade sanctions

Russia’s military operation in Ukraine resulted in unprecedented economic sanctions imposed by the West and its allies. Despite predictions, Russian economy has demonstrated a high level of resilience to these sanctions due to various tools to circumvent them. International law experts Yulia Kurilo and Umid Aripdzhanov listed some of the most popular ways of sanctions evasion.

 

One of the most popular methods of sanctions circumvention is the concealment of the country of origin, for example, by mixing goods of Russian origin with similar goods from other countries. In order for oil to cease to be considered Russian, its share in the resulting mixture should not exceed 50%. Forgery or replacement of documents is another method of hiding the origin of goods. For example, minimal processing and packing of goods in a neighboring country allows to distort information about the origin in the documents.

Another instrument is trading through the so-called «friendly» intermediaries. In such a scheme, goods that fall under restrictions and are prohibited for export to Russia are first bought by an intermediary company from a neutral country, and then resold to Russia. Often such intermediaries are companies from Turkey, experts say.

The use of financial and payment instruments of neutral states — the opening of accounts and debit cards — is another way to circumvent sanctions. Such a way to avoid sanctions, however, is becoming increasingly difficult as American financial regulators started to apply secondary sanctions against banks that do not comply with the sanctions regime against Russia.

Another way to reduce the impact of sanctions and one of the first initiatives taken by the Russian authorities is the introduction of schemes of parallel import. The range of goods that are allowed to be imported bypassing official suppliers is constantly expanding.

One of the new practices became the purchase of individual components of sanctioned goods for further assembly on the territory of Russia. Most often such components are purchased in China.

Sanctions against Russian banks have pushed customers to look for alternative payment methods. Such alternatives, among other things, are payments in cryptocurrency and payments on behalf of third parties.

In addition, Russia has expanded the use of Russian currency for settlements on foreign economic transactions. Thus, one of the high-profile decisions of the Russian authorities was the need to open ruble accounts for the «unfriendly» countries to purchase Russian energy resources.

Another tool is the creation of specialized companies registered in neutral countries. Such companies work exclusively for the domestic Russian market.

Corporate structuring and liquidation is another way considered by experts to avoid sanctions. In order to demonstrate the lack of connection between the subject of sanctions and the company with its assets, such tools as the sale of companies, transfer to a trust, reduction of the block of shares owned by the subject of sanctions and others are used.

Finally, opening of subsidiaries in countries where the SWIFT system works and settlements in rubles are acceptable is also an option. It is very beneficial for the business environment of such countries to maintain such ties with Russia, but the risks of being held accountable for violating the sanctions regime are steadily growing.

Source — The Blog of Yulia Kurilko

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