Economic Security Council of Ukraine

In two years, trade volume between China and Russia has increased by over 60%. This supports Russia's military-industrial complex, providing essential equipment for its aggressive war in Ukraine. According to information released by Chinese customs on July 12, trade volume between China and Russia grew by 4.6% in the first half of 2024 compared to the same period last year. In two years, Russia has surpassed Germany, Australia, and Vietnam in trade volume with China, reaching $240 billion in 2023. China benefits from discounted Russian oil and other goods, while Russia gains access to a wide range of consumer and high-tech products. CSIS analysts report that Beijing's share of Russian machine tool part imports, which was 32% in 2022, rose to 80-90% in 2023. Additionally, 90% of Russia's metalworking machine imports last year came from China. Bloomberg notes that countries continuing business with Russia face increasing pressure from the US, primarily due to the threat of secondary sanctions. In June 2024, the US expanded its criteria for defining Russia's military-industrial base for imposing secondary sanctions, complicating trade between Russia and China. Read the full article on the website ➡ bit.ly/3YcDrNc

Despite strict sanctions, technology and equipment from the West continue to reach the Russian military-industrial complex. How do loopholes in the sanctions regime work in practice?    In March of this year, journalists from the German TV channel ZDF contacted the ESCU. The discussion focused on CNC machines and their supply to military factories in Russia. Four months later, journalists Maja Helmer and Sebastian Just published an impressive investigation that not only explained the importance of CNC machines for the Russian military-industrial complex, but also demonstrated how these machines end up in sanctioned factories.     ZDF journalists decided to conduct their own experiment and, in December 2023, applied for an export license from the German Federal Office for Economic Affairs and Export Control (BAFA). According to their cover story, they wanted to send 10 dual-use items to Moscow, including a drone, batteries, and binoculars. BAFA responded with a form asking whether the goods would be used for military purposes, to which the journalists replied negatively, stating only for civilian purposes. After months of waiting, the permit was granted. This highlights the loopholes in Germany's strict export control mechanism, which allow negligent manufacturers to avoid responsibility and enable intermediary companies to provide Russia with access to critical technologies.     Read more about the ZDF investigation, as well as their communication with German manufacturers and authorities, on our website: https://lnkd.in/dPyaD_HP  

On 13 June, Kyiv hosted a presentation of the analytical report "Wings of War: Analysis of Western Components in Russian Fighter Jets" was presented by the Independent Anti-Corruption Commission (NAKO). The speakers included representatives of the NACP, the Presidential Office and the Kyiv School of Economics.      According to the research, Russian fighter jets, including MiG-311, Su-27SM3, Su-30SM, Su-34, Su-35S and Su-57, contain more than 2,000 foreign components from manufacturers in 22 countries. Most of the components are made in the United States, Japan, Switzerland, Germany, France, the United Kingdom, Taiwan, and the Netherlands.      Despite numerous sanctions, Russia continues to receive Western machine tools through front companies, long supply chains, and China. Chinese manufacturers supply Russia with both Western-branded machine tools manufactured in Chinese factories and their own machine tools containing Western components.      The participants of the presentation called for increased pressure on machine tool and component manufacturers, as well as for the introduction of strict corporate compliance to limit Russia's access to critical technologies.      Read more via link: bit.ly/3XtZAWT

June 12, 2024, on the eve of the G7 summit, the U.S. Department of the Treasury imposed new sanctions against Russia and its partners, who continue to bolster Russia's military capabilities. This decision is based on Executive Order No. 14114, signed by U.S. President Joe Biden, which expanded the powers of the Office of Foreign Assets Control (OFAC), allowing for secondary sanctions. The new sanctions list includes 90 individuals and entities from Russia, Belarus, the British Virgin Islands, Bulgaria, Kazakhstan, Kyrgyzstan, China, Serbia, South Africa, Turkey, and the UAE. Olena Yurchenko, an advisor to the Economic Security Council of Ukraine (ESCU), considers the U.S. Department of the Treasury's decision a positive step in combating the supply schemes of CNC machines to the Russian Federation. She notes that the large number of major companies on the list is not the primary advantage of the package. The main point is that now Executive Order No. 14114 applies not only to Russia's military-industrial base but also to all sanctioned individuals. It means the scope of secondary sanctions has effectively increased fourfold. It is hoped that this expanded interpretation and scope of the order will enhance the fight against sanctions evasion and strengthen the existing sanctions regime.  #G7 #OFAC https://lnkd.in/ehTz3ZQQ

In early spring 2024, Russian buyers of dual-use technologies, equipment, and components encountered significant difficulties in making payments and experienced considerable delays in order deliveries. Biden's executive order at the end of 2023 substantially complicated financial operations that allowed sanctions to be circumvented. Fearing secondary sanctions, several major Chinese banks ceased accepting payments from Russian banks, leading to the suspension of approximately 80% of trade settlements between the two countries.     These issues resulted in a substantial increase in imports for Russia's military-industrial complex (MIC). Turkish, Mongolian, and other foreign banks intensified transaction checks, further complicating and inflating logistics. Consequently, the profitability of military production in Russia has significantly decreased. According to Sergey Chemezov, CEO of Rostec, the profitability of factories fulfilling orders from the Russian Ministry of Defense does not exceed 2.28%.     The decline in profitability means that Russia has fewer funds for reinvestment in the development of the MIC and research activities, negatively impacting both the defense sector and the overall economy of the country. The rising cost of dual-use goods forces the Kremlin to allocate more funds for warfare, intensifying financial pressure on the Russian economy.     For more detailed information on the challenges of "parallel" imports for Russia's MIC, visit our website: https://lnkd.in/ejjih-Cd

The "War & Sanctions" platform, originally developed by the Національне агентство з питань запобігання корупції team at the onset of the full-scale invasion, has found a new home. The online portal has been transferred to The Defence Intelligence of Ukraine (DIU) and resumed its operations in early June.     The transfer of all databases of the portal significantly enhances its capacity. As an intelligence agency and participant in the Government's Expert and Interagency Working Groups on Sanctions Policy, the DIU can officially and more effectively uncover the plans, capabilities, and schemes of the aggressor and its supporters.     Moreover, the relaunch of the "War & Sanctions" portal marks the first instance globally where a state intelligence agency shares such a vast amount of open data with the world. This will facilitate coordination among the intelligence community and governments within the sanctions coalition, which is crucial for increasing pressure on the aggressor and its allies.     Currently, the relaunched portal provides information on individuals involved in the deportation of Ukrainian children, as well as on foreign components found in Russian weapons.     In the near future, the online platform will expand to include lists of individuals who are or should be subject to sanctions, databases of artworks owned by sanctioned individuals, as well as ports and airports aiding Russian aggression.    Why is the platform important not only for the ESCU but also for other public organizations, private enterprises, media, and authorities worldwide?     Enhancing Pressure on the Aggressor:     ❗ Rapid information exchange: The platform allows for quick sharing of data on sanctions and crimes committed by Russia and its allies, filling a critical information gap for Ukraine’s partners.  ❗ Comprehensive approach: The portal covers various areas of impact, enabling pressure on the aggressor not just economically, but also politically, reputationally, etc.    Countering Evasion Schemes and Sanctions Violations:     ❗ The platform serves as a "digital weapon," exposing what Russia tries to hide. It provides verified data on Russian crimes to anyone worldwide: citizens, officials, investigators, and business representatives. ❗ Evidence base: Once completed, the portal will contain detailed information on:  🔴 Over 3,100 foreign components in Russian weapons;  🔴 Nearly 300 foreign equipment units used for their production;  🔴 All sanctions imposed against Russia and its allies (11,047 individuals and 8,517 entities).    All in all, "War & Sanctions" is a powerful tool that helps the public and journalists access a library of evidence and facts for their investigations, enables businesses to safeguard themselves from risky dealings, and allows the state to synchronize actions and policies, thereby improving the fight against sanctions evasion.  "War & Sanctions" - war-sanctions.gur.gov.ua

Ilona Khmeleva, Secretary of the Economic Security Council of Ukraine (ESCU), has been invited to co-chair the ISECS working group on Russia.     The International Sanctions and Export Control Society (ISECS) is an association that deals with global sanctions and export control compliance, bringing together former government regulators and law enforcement officials, lawyers, and other experienced industry specialists.     To enhance its activities, ISECS is launching several separate working groups, with the Russia Working Group (ISECS-RWG) being the first. ISECS-RWG will address a broad range of topics related to international trade and Russian activities, including sanctions against Russia and their enforcement, the activities of the Wagner Group, and diversions committed by Russia.     For the ESCU, this collaboration is very important as it not only recognizes our expertise by international partners but also provides an opportunity to influence the global discussion.     ISECS-RWG will meet every two months to discuss sanctions against Russia and export controls affecting industry and the defense sector. The next meeting will take place on June 13, 2024. 

The USSR was among the leaders in machine tool production, but in the 1990s, Russian industry declined. Instead of thousands of CNC machines, only hundreds were being produced at the beginning of the 2000s. Government programs and foreign investments failed to restore Russian industry to its previous capabilities, as the lack of a full production cycle within the country and the shortage of necessary specialists gradually drove it into import dependency. By the time of the full-scale invasion, Russia was importing 70% to 90% of its machine tools and their components not only from the West but also from the East.     Sanctions imposed after February 24, 2022, significantly complicated Russia's access to traditional suppliers from Germany, Italy, Japan, Taiwan, South Korea, Switzerland, and the USA. Lacking the ability to independently produce the necessary machines for weapon manufacturing, Russia turned to China, which became the main supplier of industrial equipment to the aggressor country in 2023.     Whether Russia can withstand the invasion of Ukraine largely depends on its access to high-tech resources for its military machine. Therefore, the governments of the sanction coalition members must make stricter decisions to limit access to Western technologies not only for Russian sanctioned enterprises but also for Chinese manufacturers supplying equipment to Russia. More Details: bit.ly/4545sb6

On May 15-16, Kyiv hosted the first scientific and practical international conference on cyber diplomacy. Ilona Khmeleva, Secretary of Ukraine's Economic Security Council (ESCU), participated in a panel discussion where she highlighted the severity of the cyber war initiated by Russia against Ukraine. She clearly outlined the criminal nature of Russian cyber attacks, calling for clear attribution and comprehensive analysis of Russia's actions.     Khmeleva urged the adaptation of international law to the modern realities of aggression. She emphasized that accountability for war crimes must be inevitable, and sanctions must be effective. Having violated its obligations to the international community (erga omnes), Russia, as the aggressor, must pay, including through the confiscation of its sovereign assets.     The conference in Kyiv marked a significant step towards better understanding cyber challenges and developing new approaches to international relations in the digital age. More details: bit.ly/3UPnclX

On May 15, Reuters reported that France and the Netherlands are urging their EU colleagues to supplement the 14th package of sanctions with a ban on any cooperation with foreign financial institutions that conduct transactions related to the Russian military-industrial complex. Such a step, although a copy of the American Executive Order 14114 adopted in December 2023, could become a significant lever of pressure on Russia's trade with third countries. According to Denys Hutyk, an expert at the Economic Security Council of Ukraine (ESCU), in addition to financial restrictions, the next EU sanctions package should include another critical tool for monitoring compliance with the sanctions. This tool should be a new European framework of corporate compliance standards for producers and distributors of dual-use goods. Read more on our website: bit.ly/3V1gydE