The International Task Force on sanctions against Russia, chaired by Head of the Office of the President of Ukraine Andriy Yermak and Director of the Freeman-Spogli Institute for International Studies (FSI), Ambassador Michael McFaul, has developed new research focusing on Russia's attempts to circumvent export control restrictions on military and dual-use goods and software.
"The International Task Force on sanctions has indeed become a key platform where independent experts generate ideas for new sanctions and recommend how to implement the restrictions more effectively. I am grateful to each expert who contributed to the development of proposals in the key areas of export controls and IT," said Andriy Yermak.
For his part, Ambassador Michael McFaul emphasized: "Limiting Russia's ability to produce weapons is key. This is what I consider the number one priority for sanctions policy. Much has been done, but our experts point to many ways to increase effectiveness. We continue to work."
The first study, "Problems of Ensuring Export Controls," prepared jointly with the Kyiv School of Economics, exposes the ways in which military and dual-use goods are supplied to Russia. The report examines nearly 2,800 foreign components found in Russian military equipment, as well as the companies responsible for their production.
It is noted that in 2023, imports of military goods to the Russian Federation almost completely recovered after the introduction of restrictions and amounted to 90% of the volume before the full-scale invasion. On the other hand, imports of dual-use goods decreased by almost 29%, which is evidence of the success of export control measures if they are properly applied and enforced.
Products of more than 250 Western companies were found in samples of destroyed or captured Russian weapons. In the first ten months of 2023, Western companies supplied Russia with critical components totaling $2.9 billion. Imports of CNC machines to Russia in January-October 2023 increased by 33% compared to the pre-sanctions period and amounted to $292 million.
Experts call for measures to be taken to ensure that export controls outpace Russia's attempts to circumvent them. Such measures should take into account the specific challenges at different stages of the supply chain, and should be aimed at eliminating gaps in export control policy, increasing corporate accountability, countering circumvention attempts by third countries, and strengthening institutions and international cooperation.
The second study, "How to Identify and Exploit Kremlin's Weaknesses in Computer Networks and Software," analyzes the use of Western software by the Russian Federation for the operation of critical systems in the military, energy, and financial sectors, as well as in the development of artificial intelligence and the use of cloud technologies.
Russia's military-industrial complex relies heavily on interconnected software systems based on Red Hat Linux. The Neutrino, Alt 8 SP, and Astra Linux systems were also developed with the participation of Western companies.
Russian energy companies rely heavily on Western software to estimate deposits in natural resource fields. Key systems include Roxar RMS, Paradigm, Landmark Engineer's Desktop, and STARS. Despite the sanctions, these software packages are available through local representatives and intermediaries. Rosneft and Gazprom, both of which are subject to Western sanctions, are among the main users of this software.
Russian banks continue to use software products from Oracle and Microsoft. Problems with the use of SAS and IBM systems are pushing financial institutions to look for alternative software products, such as Digital Q.Reporting and Polymatica. Thus, ineffective import substitution in the financial sector opens a window for potentially successful sanctions restrictions. Dependence on VMware and Citrix software forces Russian institutions to use their own alternatives, which have problems with functionality and reliability.
The Group's experts recommend imposing sanctions against Russian developers and ending support for Russian software products by contractors from partner countries, including holding such companies liable for violating KYC (know your client) principles. Other proposed restrictions include the requirement to stop financial transactions with Russian companies, to ban the participation of Western companies in joint developments, and to create a separate database of alternative software used by the Russian Federation.