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Tracing the sanctions violators and expanding the alliance

Sunday, 11 June 2023, 11:44

The current war is changing the global security and economic landscape. What was previously thought of as the world’s second army has become history or myth, countries that have remained neutral for decades and even centuries now seek safety and join NATO, Morocco and Pakistan provide arms to Ukraine, and sanctions regimes become stronger than ever before. 

The global market rules and the hopes that interdependency can prevent serious military conflicts seem to have failed. At least, it is true in regard to Russia. Despite all the benefits it had from trading with the EU, enjoying US investments and technology sharing in all possible spheres of economy, it chose a path of confrontation and lost most of the gains of the previous 30 years. 

Should the world expect the same behaviour from other large geopolitical players? Or is the lack of common sense only typical of those ruling from the Kremlin? Are we to see authoritarian regimes challenge democracies regardless of the harm it brings into the lives of people all over the globe? Can we tell good from evil?


Moscow’s diplomacy has long since turned into a machine producing lies

These questions have been growing more relevant ever since it became clear that not all nations and leaders share the same understanding of good and evil. How surprising is that, given the numerous "conferences" and "round tables" the Russian so-called diplomats have arranged on the platforms of their embassies, Rossotrudnichestvo, and the Orthodox Church facilities wherever they can reach? For example, there was a conference organised by Russia in Congo one day before the anniversary of the full-scale invasion of Ukraine, named "Hybrid war against Russia". Such events are nothing but despicably hypocritical in the way they perverse the truth, not to mention the Russian propaganda distribution through the Moscow Orthodox centres in Paris and Mount Athos in Greece, or the constant references to the colonial past of other countries, while being a former empire itself, one that was oppressing entire nations and is trying to restore that state of affairs. 

The liar, however, often becomes a victim of its own evil deeds. In the case of the Russian Ministry of Foreign Affairs, it is amusing to see how they issue official reports on non-friendly states, describing European countries turning their backs on Russian citizens after 24 February 2022. Fun fact: although the report of 14 June 2022 clearly states that there was no animosity before the invasion, the authors cannot come to a logical conclusion of why yesterday’s friends have been avoiding even looking their way since then, and keep on blaming the West instead. 

The central point of the Russian narrative towards the countries that have not yet joined the sanctions coalition is that the sanctions that have been imposed against Moscow are damaging to the rest of the world and particularly the Global South countries. The Kremlin pushes the false idea of sanctions causing food shortages, blaming the restrictions on purchasing Russian agricultural products and fertilizers. However, it is just another lie and twisting of facts that has been repeatedly disproved by the State Department and OFAC officials referring to particular documents

What is really damaging is business as usual in and with Russia, as the sanctions have been developed and imposed specifically to prevent Moscow from being able to carry on its war of aggression in Ukraine. 

Fighting Russia requires counteroffensive measures, not just suicidal self-defence 

According to the United Nations, the aggression has already taken the lives of over 8,200 and injured over 13,700 civilians in Ukraine within the first year of war. As a reminder, the war in Syria killed over 3,900 civilians in its first year, according to Syrian Observatory for Human Rights, with the toll rising all the way to over 162,000 by 2023. With a much more significant firepower of the Russian occupational forces, the death toll in the current war, the largest military conflict since WWII, is already twice as high as in the first year in Syria, and could become much worse if the Ukrainian Armed Forces did not have the capacity to defend their country. The calls we sometimes hear to provide only defensive equipment to Ukraine seem critically incompetent or hostile, as it is clear that the aggressor’s air and missile forces, as well as armour and ammunition numbers are much larger, which requires counteroffensive actions. Otherwise, staying in defence against such an enemy will only shrink the UAF ability to simply shoot back, as ammo has a tendency to deplete, to say nothing of all the lives lost to the war, those of yesterday’s carpenters, teachers and students, chefs, businessmen, lawyers, software developers, and others who never held a gun in their hands before February 2022. 

Not many want to join the Russian sinking ship of shame

While some stubbornly pretend to be peacekeepers, others do what is right and help the attacked nation by supplying complex military equipment, ammunition, and tanks. Some deals remain secret, while others have been revealed to the public and gained the gratitude of the Ukrainians. Even though some might not want to disappoint Moscow for political or economic reasons, it has become clear that the Kremlin will endure any "dagger in the back" these days, as it cannot afford losing more oil and gas customers or demand that anyone join their sinking ship of shame. It is interesting to see how the seemingly neutral India has suspended the execution of around USD 2 billion of existing arms contracts with Russia and another USD 10 billion of credited arms funds, cautious of being affected by the sanctions. India’s logic is justified. Just look at the latest decision of the US Supreme Court regarding the Turkish state-owned Halkbank and its prosecuted top managers, who were accused of helping Iran evade US sanctions. The extraterritorial effect is not to be laughed at.

Tracing the sanctions violators and expanding the alliance

Some of the well-known problems still remaining are the offshore smokescreens for discreet shareholding structuring, including those used to circumvent sanctions. A myriad of financial and legal fixers serving oligarchs close to the Kremlin attracted the attention of a group of researchers who published their report in the scientific journal PNAS Nexus in late February 2023. One of the main conclusions of the research called Complex systems of secrecy: the offshore networks of oligarchs is that those toxic networks are heavily dependent on just a few closely connected nodes, which are usually wealth managers who in the end turn out to be intermediaries and whose key role is to make the dark money flows actually flow. This is a disruptor for the global wealth management industry and, of course, the oligarchic networks feeding the Kremlin. We should expect a significant transformation of the landscape sooner rather than later, with financial intelligence units around the world having much work to do. 

This is especially important ahead of the FATF meeting to take place on the 19th of June 2023. It is worth noting how much Russia is afraid the world’s top economies could isolate it from the global financial system through blacklisting the country. Moscow acknowledges that its criminal deeds are worth blacklisting and makes tremendous efforts to persuade FATF member states to avoid this move. The FATF members should not give in to such pressure. Blacklisting the aggressor is supposed to influence the sanctions circumvention mechanisms in the first place by cutting off all the dubious grey dealmakers who help Russia produce the weapons aimed at Ukraine’s once peaceful cities. 

Attracting businesses to the process of preventing sanctions circumvention is also a promising effort. Employees of companies operating in the countries heavily involved in the facilitation of sanctions evasion should be encouraged to provide information on any violations of international sanctions committed by their employers. The whistle-blowing legal framework, informing mechanism and the reward procedure could be borrowed from that of the anti-corruption regulations. 

Another crucial matter is once reputable businesses staying on the Russian market. Every international company declares responsible and ethical business behaviour reflected in its code of conduct, ethics charter, and numerous policies proudly published on its corporate website. They inevitably state compliance with both international regulations and local laws. 

Those policies’ implementation, especially within EU companies, should somehow correlate with the European Parliament declaring Russia a state sponsor of terrorism. It can be construed to mean that paying taxes in Russia is co-sponsorship, particularly when it comes to complying with local laws and providing loan privileges to members of the aggressor’s occupying forces in the case of banking businesses. 

As for third-party compliance policies and integrity due diligence rules, since the beginning of the Russian aggression, many of the previously yellow-risk suppliers, clients, distributors, and other local counterparties have most likely entered the red zone due to their affiliation to sanctioned firms and individuals, which has significantly decreased the number of third parties available for doing business with in Russia. The longer a company stays in such an environment, the harder it gets to withdraw with minimum losses for both its funds and its reputation. 


In any event, amid the overall support of Ukraine, one of the high priority tasks right now is to expand the sanctions coalition that yet lacks visible support of the Global South, so that as many countries as possible around the world can exchange sanctions-related data and contribute to preventing the aggressor from continuing to wage its war instead of helping it carry on with the violence. It is the global security that is at stake in the end. 

Pavlo Verkhniatskyi

Managing Partner and Founder at COSA   
Member of the International working group on Russian sanctions  
Member of the Public Council at the National Agency for Corruption Prevention of Ukraine 

Disclaimer: Articles reflect their author’s point of view and do not claim to be objective or to explore every aspect of the issues they discuss. The Ukrainska Pravda editorial board does not bear any responsibility for the accuracy of the information provided, or its interpretation, and acts solely as a publisher. The point of view of the Ukrainska Pravda editorial board may not coincide with the point of view of the article’s author.

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