Never before have Western economic sanctions proliferated in such numbers. More have been slapped on entities connected to Russia since its invasion of Ukraine on February 24th than had been applied to entities worldwide in the previous decade, says Paul Feldberg, a partner in the London branch of Jenner & Block, a law firm. Big money is at stake. In 2014 America fined bnp Paribas, a bank, nearly $9bn for violating sanctions on Cuba, Iran and Sudan. But governments out to enforce the sanctions, and companies trying to stay on the right side of them, are finding the work devilishly hard. Many of the Russian entities subject to sanctions are much bigger, more complex and more deeply embedded in global business networks than previous targets in, say, Iran, Myanmar, North Korea, Syria or Venezuela.
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Another challenge is that America and its allies have issued numerous “narrative” or “implicit” sanctions, which apply not just to cited entities but also to thickets of unspecified ones connected in shadowy ways. Labyrinthine business structures must therefore be carefully mapped, says Christopher Stringham, a lawyer in Vienna with Refinitiv, a data firm that does just such mapping to help clients avoid steep fines. He tells the story of a London-based company his team identified as part of a sanctions-hit Russian energy firm. Searches in government registries had run “into the sand”. Eventually, however, the team found, on page nine of a Russian-language prospectus not searchable in databases, an oblique reference to certain debt instruments issued by the London firm on behalf of the Russian company. That was enough for the British company to qualify as a subsidiary subject to sanctions.
Mr Stringham reckons that with a bit more effort the subsidiary could have ducked “completely under the radar”. Russia’s government seems keen to help firms and oligarchs do so. For years Russian authorities have tolerated corporate filings with falsehoods meant to sidestep Western sanctions, he says. In recent weeks Russia has also sharply restricted access to corporate registries and cut back on publishing data on energy production and trade. Rather than struggling with the trustworthiness of information, Mr Stringham says, “now we just don’t have access at all.”
Relevant information is disappearing in other ways, too. Many Russian companies and tycoons have hastily sold or transferred assets like ships and stocks to entities unlikely to be hit with sanctions. Those deals can look legit. In many cases, however, legal documents have also been prepared to preserve the original owner’s control. And, says Alexander Dmitrenko, an expert on Russia and Ukraine in the Tokyo offices of Ashurst, a law firm, “that paperwork isn’t visible.”
Given the opportunities for deceit, the deck might seem stacked in favour of those seeking to evade sanctions. But investigators trying to detect sanctions-cheaters—for government agencies, pressure groups, or insurers and other businesses—are encountering a surge of help from an unexpected quarter. Russia’s attacks on Ukrainian civilians have stoked widespread outrage, in no small part because of the flood of shocking imagery on social media. As a result, people with visibility into business dealings involving Russia have begun to disclose, on the sly, details of transactions they suspect are improper.
It takes time for enforcement actions to play out, and these are early days. But consider the experience of Bellingcat, a muckraking outfit in Amsterdam. Christo Grozev, Bellingcat’s lead investigative journalist for affairs linked to Russia, says the horror of the Kremlin’s war is leading people to reach out with tips about Russian wrongdoing. Someone who works in Russia for a company based in Paris recently sent Bellingcat internal documents that suggest a shipment of supposedly humanitarian goods actually contains garb for Russian soldiers. To protect the employee’s identity, Bellingcat is working to prove the wrongdoing through other means. It has obtained phone records showing calls between Russia’s Ministry of Defence and an organisation connected to the Paris firm.
Bellingcat’s new informants are taking greater risks than once was customary, probably because Russia’s war is generating such disgust. As Mr Grozev puts it, “Job security is taking a back seat.” If the fighting grinds on, he expects the good tips from within Russia to multiply.
Oil leaks
One outfit that saw the opportunity to cultivate new sources of information early on is the Russian Tanker Tracking Group (rttg). Hastily put together by Ukraine’s government after the invasion, the rttg serves as a clearing-house for tips from people knowledgeable about trade in Russian oil, from crew members to foreign officials, says Oleg Ustenko, one of rttg’s leaders. Mr Ustenko, who is also economics adviser to Volodymyr Zelensky, Ukraine’s president, says the rttg’s network of unpaid informants has grown with revelations of Russian war crimes.
Though cagey about rttg’s informants, Mr Ustenko describes many as “ordinary people”. Legions of Ukrainians, he notes, work on ships. (The International Chamber of Shipping, an industry body, recently tallied 76,442 Ukrainian mariners.) “They might be a good source,” he observes. Mr Ustenko, who works from an undisclosed location in Ukraine, boasts that the rttg has such detailed information that it often knows the breakdown of nationalities of the crew on a given run by an oil tanker.
The rttg shares tips with Ukrainian and foreign authorities. But because so much of Russia’s oil trade remains legal, the rttg also publicises information about shipments in hopes of generating political and consumer pressure. The stench of association with Russia has led some insurers and Western energy companies to limit involvement with what Louis Wilson of Global Witness, a pressure group that works with the rttg, calls “blood oil”. Similarly, stories about multinationals still doing business with Russia are multiplying in the Ukrainian press and then being blasted out by Ukrainian public-relations firms to publications worldwide.
Russia has stopped publishing monthly trade numbers. But The Economist has estimated that Russia’s imports have fallen by about 44% since it invaded Ukraine, while its exports have risen by roughly 8%, in part because Russia is earning about $1bn a day from the sale of oil and gas. Although it is not known how much banned trade may be under way, it is thought that Russians are particularly keen to import industrial machinery; advanced semiconductors; parts for aircraft, rockets and spacecraft; components for radio communications; and luxury goods such as cars and jewellery. Russian businesses are believed to be eager to illicitly export wood products, seafood and liquor.
Because trade is so decentralised and diffuse, conducted via closed shipping containers or in the form of fungible commodities, an informal, global network of low-cost or volunteer spies can be of particular value in spotting smugglers. Samir Madani is a co-founder of TankerTrackers, a firm with analysts in London and Stockholm. Much of the information his team parses comes from people paid to snap photos of tankers in and near ports (the hull’s draught reveals how much oil is on board). But TankerTrackers also receives tips free from workers. The information sometimes includes pictures of falsified shipping documents. The scoops are typically sent to a “burner” smartphone that TankerTrackers keeps in its Stockholm offices, where Mr Madani works.
In the past, such tips have tended to come from sailors and port workers fed up with the dictatorships they live under. Tips about Iran’s cheating on sanctions—Mr Madani calls it “wholesale obfuscation”—multiplied after Ebrahim Raisi, a hardliner, was elected president last June. As Venezuela’s economy fell to new lows several years ago, disclosures about the regime’s illicit shipments of oil to prop up Cuba’s government began to increase. Mr Madani expects more messages from Russian workers now that Mr Putin has gone “into full dictator mode”.
The experience of a Ukrainian intelligence firm called Molfar, which has roughly 35 analysts in Kyiv and Dnipro, is illustrative. Since late February, it has been contacted by about ten employees of Russian payments companies who betrayed their employers’ efforts to dodge sanctions. Molfar gave the information to a news organisation, ain.Capital, which on May 3rd released on Facebook a list of 47 outfits suspected of illicitly moving money in and out of Russia. After the details were posted, one of the firms named as a “cheat service”, Bankoff, a payments company, announced to its users that Visa and Stripe had notified it that “Bankoff Card services have been suspended due to the high volume of active users and transactions from Russia.”
Some tipsters are motivated by anger at Russia over rising prices on staples like petrol and grains, says Ian Ralby, ceo of ir Consilium, a consultancy that focuses on maritime security and crime. ir Consilium advocates a “whole of society” approach to gathering maritime intelligence; its clients have included nato, America’s Department of Defence and the Oceania Customs Organisation, a body based in Fiji that helps 23 member countries and territories improve customs operations.
The rewards for cheating can be big. A London chartering manager who requested anonymity says outfits illicitly buying Russian goods are scoring discounts of up to 30%. Perhaps it’s little wonder, then, that the manager’s vessel brokerage sees more ships turning off their transponders—devices that broadcast a vessel’s position, course and speed—long enough to duck in and out of Russian ports. Another sign of mischief is that fewer details are released about many transactions. In recent weeks a Russian shipping agent in St Petersburg began to send the London brokerage information about vessels breaking Western sanctions, including by turning off their transponders to reach St Petersburg. In exchange, the informant may be hoping for sweetheart deals when the brokerage resumes business with Russia.
The London brokerage keeps the information to itself, leaving its competitors to risk fines. For its part, TankerTrackers sells its information to clients that include banks and insurers, which sometimes sever a suspected wrongdoer’s financing or insurance. Lawyers for such outfits regularly contact TankerTrackers to proclaim their innocence. It shows them the eence, Mr Madani says, “and then they go quiet.”
The potential of this ad hoc intelligence network has not gone unnoticed by America’s Central Intelligence Agency. Early this month it took to Facebook, Instagram and YouTube to publish instructions in Russian for securely sending in tips. Russia’s regime and its companies, in the end, may prove leakier than the sanctions. ■
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