German companies continue to supply electronics to CIS countries, which ultimately end up in Russia, despite sanctions

Concerned about their business and reputation with foreign partners, some companies refrain from supplying dual-use goods to both Russia and CIS or EAEU countries. Nevertheless, there have been publications in the press about German firms evading sanctions and circumventing the sanction regime by redirecting exports to third countries. How does this mechanism work, and is it possible to disrupt its operation?

Spiegel conducted an investigation into Elix-St. GmbH, a Stuttgart-based company established by a family of Russian origin during the full-scale war in Ukraine. It was revealed that the company was supplying microelectronics to Kazakhstan, where the goods subsequently found their way to the main Elix-M company in Moscow through intermediate exporters.

According to information provided by Erlend Bolleman Bjortvedt, a Norwegian entrepreneur in the consulting sector, at least 54 German companies have been involved in circumventing sanctions against Russia. One such company is Bechem, a fuel oil producer from Hagen. Although Elix and Bechem did not profit significantly from this practice (800 thousand euros and 670 thousand euros respectively), their method of bypassing sanctions through the use of third countries is an undeniable fact.

Spiegel mentions the possibility of BASF, a major market participant, being involved in using Kazakhstan as an intermediary for the shipment of polymers and petrochemical products that can be used in the production of military equipment, circumventing sanctions and even reaching Russian military bases.

Experts point out shortcomings in the sanction packages, such as ambiguity, lack of transparency, and convoluted provisions, which complicate business operations. Long chains of intermediate exporters make it challenging to determine the ultimate consumer of the goods, creating opportunities for abuse. Companies lack adequate control mechanisms to trace where and in what specific equipment their components will end up. This is particularly relevant for components used in weapon systems that were once sold to end consumers through numerous intermediate firms.

The European Union plans to introduce a new mechanism for criminal prosecution of companies that violate sanctions. Even if companies were unaware of the destination of their products, they will be held accountable for “negligence.” This provision can encompass firms that have not actively violated sanctions but consciously did not impede their violation.

Regarding companies supplying consumer electronics, Theodor Titi suggests imposing sanctions that cover entire categories of goods rather than individual components. This approach addresses cases where microchips contained in consumer electronics can potentially end up in night vision devices or missile control elements. Consequently, companies will not be able to sell their products under different trade codes that are not included in the sanction lists.

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