Exploring Russia’s Pervasive Evasion of US and EU Imposed Sanctions

Since Russia invaded Ukraine in February of 2022, they have displayed a remarkable ability to evade economic sanctions imposed by both the United States and the European Union. Despite concerted efforts to strangle its financial lifelines, Russia has remained resilient and strategic in their maneuvering of financial assets. Let's delve into the dynamics of this evasion and the ongoing struggle to suffocate Russia economically.

Background of Economic Sanctions Against Russia:

In the wake of Russia’s invasion of Ukraine, the White House foresaw a grim economic future for Russia, predicting a potential default. This prediction was based on the anticipation of a rapid decline in Russian GDP per capita, with projections of a shrink doubling that which Russia suffered after it defaulted in 1998. Indeed, the year 2022 proved to be harsh for the Russian economy, with reports from the World Bank, the IMF, and the OECD indicating a significant drop of 2.1% in Russia’s GDP.

Russia’s Efforts to Escape:

In response to the invasion, the US and the EU initiated a series of economic sanctions aimed at crippling Russia’s financial stability. These measures included banning specific products to minimize the negative impact on the Russian economy while minimizing repercussions for EU businesses and citizens.

Despite these sanctions, Russia has managed to evade the economic chokehold. As of 2023, an estimated 70% of the assets in the Russian banking system are under sanctions. The US Treasury’s Office of Foreign Assets Control (OFAC) has sanctioned more than 300 individuals and businesses, increasing this number to over 500 after the death of Alexei Navalny. This marked the largest number of sanctions imposed by the US since the initial invasion of Ukraine. Yet, Russia persists in its evasion tactics.

Russia established the National Payment Card System Joint Stock Company (NSPK) to bypass sanctions, allowing them to continue funding weaponry and military operations and prioritize their aggressive strategies over the economic well-being of their citizens. The NSPK is the state-owned operator of the Mir National Payment system and is owned by Russia’s Central Bank. It plays a major role in internal and external interactions. It has allowed Russia to reconnect to the international financial systems that had been previously cut off since the start of the war. OFAC has directly targeted the Mir National Payment Systems to support G7 commitments like tackling pervasive economic issues. Still, Russia has been able to evade the extent of the sanctions' negative financial impact through the NSPK.

Looking Forward:

As strategies to suffocate Russia economically have not been as successful as intended, it becomes imperative to reassess innovative strategies to suppress Russia’s ability to fund its war with Ukraine. While sanctions remain a critical tool, their effectiveness hinges on international cooperation and adaptability. Addressing the loopholes exploited by Russia, enhancing intelligence-sharing mechanisms, and fostering multilateral approaches are critical steps going forward. As the struggle persists, the international community must remain vigilant and agile in its response to uphold democratic principles and safeguard global security.