How US Loopholes and Lax Enforcement Fuel Russian Sanction Busting, Prolong Ukraine War

Editor’s Note: This is the latest installment in Kyiv Post’s Sanctions Busting series, an investigative collection of articles on how Russia continues to evade economic sanctions to wage war in Ukraine.

In a decisive move earlier this month, the administration of former President Joe Biden imposed fresh sanctions targeting Russia’s energy sector and its so-called “shadow fleet” of oil tankers.

The ships, comprising hundreds of vessels under opaque ownership, are used to secretly transport Russian oil and evade international restrictions. The sanctions aim to disrupt Moscow’s ability to fund its military campaign in Ukraine by tightening restrictions on key economic lifelines, according to Reuters.

Despite imposing over 15,000 sanctions since the war began, the US and its allies face significant enforcement hurdles. Russia’s economy, heavily reliant on energy and metals exports, has proven resilient due to the widespread use of intermediaries and sanctions-busting networks.

Other Topics of Interest

‘A National Embarrassment’ – Trump Pardons 1,500 Rioters Who Stormed US Capitol

While would-be insurrectionists rejoiced at the sentence commutations and outright pardons, police and politicians called the clemency a “betrayal” and an “outrageous insult to our judicial system.”

The latest US sanctions represent a final attempt by the outgoing Biden administration to cripple these sectors before political changes in Washington could shift policy under the new administration of President Donald Trump.

The pros and cons of America’s sanctions framework 

The US sanctions regime, primarily overseen by the Office of Foreign Assets Control (OFAC), aims to disrupt key sectors of Russia’s economy, including energy, finance, and metals. Set up in the 1950s, the OFAC framework was initially designed to enforce trade embargoes and other economic restrictions in response to geopolitical tensions, with its role expanding over the decades to include comprehensive sanctions targeting entire sectors.

Since the 1990s, the US has increasingly used targeted financial sanctions to influence foreign policy. This strategy was refined following the 2008 financial crisis and the rise of digital financial systems.

In comparison, Europe’s sanctions framework has traditionally been more focused on diplomatic consensus. It often moves at a slower pace due to the need for approval from all EU member states. While both the US and Europe have worked in tandem to target Russian oligarchs, state-owned enterprises, and critical industries since 2022, the US sanctions regime has been more aggressive and unilateral in many instances, using its dominant position in the global financial system to impose penalties on Russia’s economic lifelines.

By contrast, Europe has faced more internal resistance, particularly from countries with strong trade ties to Russia, making the enforcement of sanctions more challenging.

Since 2022, US sanctions have specifically targeted Russian oligarchs, state-owned enterprises, and critical industries to cut off Moscow’s war funding, with a particular focus on sectors that are central to Russia’s economy and military capabilities.

Despite these efforts, intermediaries in third countries have continued to facilitate trade with Russia in hard-to-track back channels. US exports to countries such as Turkey, Kazakhstan, and the UAE have surged, raising suspicions that these nations are acting as conduits for goods ultimately destined for Russia.

According to trade data shared by state officials, exports to Kazakhstan increased by 70% in 2024 alone. Later that year, the Associated Press reported that US authorities intercepted a shipment of high-end electronics and luxury goods destined for Russia via Turkey.

American-made dual-use technologies – products with both civilian and military applications – have also continued to reach Russia despite sanctions. Advanced semiconductors and electronic components manufactured in the US have been found in Russian military equipment on the battlefield on several occasions, according to a 2024 report by the Center for Strategic and International Studies (CSIS).

Loopholes weaken US sanctions

While the US has introduced comprehensive sanctions, enforcement remains a persistent challenge. A key difficulty lies in Russian entities’ use of opaque ownership structures and shell companies to disguise their operations. These tactics allow sanctioned firms to continue operating by rerouting trade through intermediary countries.

Despite restrictions on Russian energy exports, intermediaries have facilitated continued sales. The shadow fleet of oil tankers, targeted by the latest US sanctions, plays a key role in these operations. According to Reuters, this fleet is known for using tactics such as switching off transponders and conducting ship-to-ship transfers to avoid detection. 

The metals industry – particularly iron, steel, and aluminum – has also been a significant avenue for sanctions evasion. Russia’s metals exports generate billions annually, providing a vital source of revenue to support its war effort. Despite sanctions, Russian companies have continued to export metals through intermediaries in countries like China and Turkey, according to Politico

Critical loopholes in Europe remain for Russian semi-finished metal products, such as slabs and pig iron. These exceptions have allowed Russian oligarchs to sustain key revenue streams despite international efforts to cut them off. According to an analysis by Bloomberg, Vladimir Lisin, the owner of NLMK, one of Russia’s largest steel producers, is among the biggest beneficiaries of these exceptions.

Notably, the United States has not personally sanctioned Lisin, which further complicates efforts to limit his influence on the global metals market. According to industry reports obtained by the Financial Times, NLMK continues to supply semi-finished products to European manufacturers, sustaining Russia’s economic resilience.

In August 2024, the US imposed sanctions on several Russian steel and mining firms, including Magnitogorsk Iron and Steel Works (MMK), one of Russia’s largest steel producers. MMK was designated due to its significant role in the Russian economy and its substantial contributions to the government’s revenue.

The sanctions aim to disrupt MMK’s operations and limit its ability to finance Russia’s military activities. However, according to OFAC, enforcement gaps have allowed Russian metals to continue entering international markets, including Europe and North America, through intermediaries.

Russian oligarchs with ties to the metals industry have also played a key role in sanctions evasion. Oleg Deripaska, a sanctioned billionaire and founder of Rusal, exemplifies how sanctioned individuals can still wield significant influence. Despite being sanctioned by the US in 2018, Deripaska reduced his ownership stake in Rusal to secure the lifting of direct sanctions on the company in 2019, per Bloomberg. 

However, Deripaska personally remained under sanctions while continuing to exert indirect control over key assets. His use of intricate networks and offshore entities to maintain his influence underscores the broader issue of oligarchs circumventing restrictions through complex financial maneuvers. In 2023, according to the US State Department, a former senior FBI official pleaded guilty to conspiring to violate American sanctions by secretly working for Deripaska, further illustrating how wealthy oligarchs continue to find ways to bypass enforcement.

These cases illustrate the challenges of enforcing sanctions against well-connected Russian oligarchs who utilize intricate networks to maintain their economic influence despite international efforts to curtail their activities.

A show of strength from Washington

Experts have warned that without more stringent measures and increased accountability for companies involved in sanctions evasion, the US risks weakening the overall impact of the international sanctions regime on Russia.

While sanctions have targeted key revenue-generating sectors of the Russian economy, enforcement loopholes – both domestic and international – have allowed Russia to continue evading restrictions, prolonging the conflict. Effective enforcement of sanctions is critical to disrupting Moscow’s ability to fund its war in Ukraine.

Without improved enforcement mechanisms, analysts say the latest round of sanctions targeting Russia’s oil and metals sectors will not sufficiently exert the intended economic pressure.

Analysts point out that Russian exports are still reaching global markets through intermediary countries, and existing monitoring systems often fail to detect these rerouted flows. To close these gaps, several measures have been proposed:

• Expanding international cooperation: Strengthening intelligence-sharing and joint enforcement with countries known to act as intermediaries, such as Turkey, the UAE, and Kazakhstan, is essential. Building on existing partnerships with the G7 and NATO, Washington could push for more aggressive joint actions, including coordinated seizures of sanctioned goods and expanded diplomatic pressure on these nations to comply (Brookings).
• Leveraging advanced technology: Investing in AI-driven tools capable of tracking trade flows and identifying suspicious patterns could significantly enhance oversight. These technologies can improve the detection of illicit re-exports by analyzing shipping data, financial transactions, and customs records in real-time (CSIS).
• Imposing secondary sanctions: Introducing secondary sanctions on entities and countries facilitating Russian trade could deter intermediaries from aiding sanctions evasion. This approach has previously proven effective in curbing Iranian oil exports, and experts believe a similar strategy could work with Russia (Brookings).
• Enhancing private sector accountability: Encouraging businesses to adopt more robust compliance programs is essential for closing enforcement gaps. This includes regular audits, better internal controls, and mandatory reporting of suspicious activities. Financial institutions, in particular, must remain vigilant, as they are often the first line of defense against illegal transactions (U.S. News).

By adopting these measures, Washington and the Trump team would demonstrate a renewed commitment to upholding the sanctions regime and preventing further evasion. Without stronger enforcement, Russia will continue to exploit loopholes, undermining both Western efforts to support Ukraine and the broader credibility of international sanctions.