Russia intends to use Uzbekistan for new sanctions evasion

The Russian government intends to fund the setting up of front firms to purchase electronics for combat drones.

During the summit of CIS leaders on December 26, 2023, Russian dictator Putin assessed the terms of cooperation with Uzbekistan’s top military and political leadership. It was reported by Ukraine’s Center for National Resistance.

The report states that the Russian government reached preliminary agreements on establishing a number of front firms in Uzbekistan, which it will fund.

Russia’s plans to use Uzbekistan as a platform for sanctions evasion

Russia and Uzbekistan have officially announced their cooperation in the transportation sector. However, according to the Center, it involves the creation of bogus firms in order to circumvent international economic sanctions against Moscow.

Furthermore, such an arrangement will serve as a method for Russian companies to produce drones using foreign electronic parts. These enterprises will export products and components to a number of Russian defense companies in the future. The list includes Russian companies like the Elektropribor facility in Kazan, Elekon, Stella-K, and others.

Russia also intends to purchase Soviet ammunition from Uzbekistan’s stockpiles in order to supply its invading forces in Ukraine.

Thus, the Russians intend to continue deploying bogus firms throughout Central Asia in order to evade international sanctions. This strategy and this region for sanctions evasion for the procurement of weapons components appear to be the most promising for Putin’s regime to support its war efforts.

Russia’s imports of cotton pulp from Uzbekistan for gunpowder production

Earlier, we reported that Russia still relies on Uzbekistan for imports of cotton pulp, a key gunpowder component. Shipments of cotton pulp from Uzbekistan to Russia have surged since the invasion of Ukraine. Some Uzbek companies directly supply raw materials to Russian industries, the OCCRP investigation shows.

Documents obtained by journalists from OCCRP, Vlast, and iStories demonstrate that Kazakhstan and Uzbekistan produce more than 98 percent of the cotton pulp imported into Russia and that imports have surged since Russia’s full-scale invasion of Ukraine.

According to the obtained export-import data, Uzbek enterprises exported almost $8.7 million worth of cotton pulp to Russia from January to September 2023, representing a nearly 70% increase over the previous year.

Documents obtained by reporters from Russia’s Federal Tax Service reveal that at least three Russian companies—Bina Group, KhimTrade, and Lenakhim—sold imported cotton pulp to Russian military plants in 2023, in the second year of Russia’s all-out war against Ukraine.

The EU talks with Uzbekistan on preventing sanctions evasion

Will Uzbekistan keep its promise given to the EU or will it collaborate with Putin’s regime? Last October, foreign ministers of the Central Asian countries – Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan – have agreed to continue cooperation with EU countries to combat Russia’s efforts to circumvent sanctions.

The European Union appreciated the cooperation with the states in the fight against sanctions evasion, and emphasised the importance of continuing efforts aimed at stopping the re-export of dual-use goods. But it’s not excluded that Uzbekistan or other states in the region, having historical ties with Moscow, might play a double game.

In light of the ongoing Russia’s war in Ukraine and the EU’s aid to Kyiv, David O’Sullivan, the EU Sanctions Envoy, voiced concerns over the possibility of Uzbekistan serving for Russia as a platform for sanctions evasion.

While the EU has started working on ensuring the 12th sanctions package implementation there are concerns over potential loopholes and sanctions evasion hubs. O’Sullivan noted that previously, two Uzbek companies were subjected to limited sanctions to deter European companies from engaging with them due to concerns over potential sanctions circumvention.

O’Sullivan addressed the issue of goods produced in the EU being re-exported through Uzbekistan, which saw a 126% increase in intermediary trade. “We have observed a trend of a shift of the trade which previously went to Russia and which is now finding its way into Kazakhstan, Uzbekistan, Armenia, Serbia, Turkey, UAE”, O’Sullivan stated.

New US sanctions against companies in Uzbekistan for facilitating sanctions evasion

In March, O’Sullivan traveled to Kyrgyzstan, and then visited Uzbekistan and Kazakhstan in April. Following O’Sullivan’s trip, a delegation of US officials led by Assistant Deputy Secretary of the Treasury Elizabeth Rosenberg visited Astana in May to discuss a crack down on parallel imports in the region.

On November 2, 2023, the US government issued new Russia-related sanctions targeting more than 200 individuals and companies. The US Treasury Department sanctioned individuals and firms in Kyrgyzstan and Uzbekistan for facilitating the re-export to Russia of sanctioned goods.

Particularly, in this package, the US targeted the production of combat drones, used by the Russian military in Ukraine, designating a network it accused of procuring foreign drone parts for Russian manufacturers.

The EU’s sanctions against companies from Uzbekistan for sanctions evasion

The 11th EU sanctions package against Russia, adopted in June 2023, was aimed at ensuring that EU sanctions against Russia are better enforced and sanctions circumventions are prevented. In this package, companies from Uzbekistan were among the 87 organizations added to the list of direct supporters of Russia’s military-industrial complex for re-exporting dual-use goods and advanced technologies to Russia.

The 12th EU sanctions package against Russia, adopted in December 2023, continues to focus on combating sanctions circumvention.

Entities from Uzbekistan are also on the list of the latest UK sanctions list announced in December 2023. The UK government stated it was targeting individuals and entities that supply and fund Putin’s war machine and circumvent previous sanctions.

Why trade with companies from Uzbekistan require a special attention?

Countries like Uzbekistan require special attention, as any new bogus company can be involved in sanctions evasion schemes to help Russia’s war efforts.

In 2022, there was already a case when newly-created Uzbek companies helped Russia to circumvent sanctions. The US Department of Commerce described the activities of Uzbekistan’s Alfa Beta Creative and GFK Logistics Asia, both of which are headquartered in Tashkent, as created to “evade export controls and acquiring or attempting to acquire US-origin items in support of Russia’s military and/or defense industrial base.”

Tashkent-based media Gazeta.uz, citing company registry data, described Alfa Beta Creative as having been registered in June 2022, months after the start of Russia’s war in Ukraine.

So what can prevent Russians and Uzbeks from setting up new companies to circumvent sanctions and supply arms components to Russia? What guarantees can the Uzbek government provide that this will not happen again after the 12th package of EU sanctions? Should the West ban trade with Uzbekistan at all?

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