Russian leader Vladimir Putin speaks on January 18, 2023, in Saint Petersburg, Russia.

Russian leader Vladimir Putin speaks on January 18, 2023, in Saint Petersburg, Russia. Contributor/Getty Images

Treasury Aims To Halt Russian Smuggling, Sanctions Evasion

Russia’s smuggling efforts are providing diminishing returns, Treasury Department officials say.

Treasury Department officials will meet with counterparts from several nations next week to discuss ways to stop Russian individuals and organizations from evading international sanctions, two senior department officials told reporters on Friday. 

The message to countries still allowing Russia to buy and sell goods the United States and its allies have sanctioned: “If these countries fail to take actions to prevent Russia from wittingly and unwittingly using their systems, we and partners are prepared to use various economic tools at our disposal to act on our own,” the officials said.

U.S. officials will convey the warning at the upcoming International Monetary Fund and World Bank meetings in Washington, and during travel to countries in central Europe and Asia. 

Thanks to international sanctions, the Russian government is having to spend more to earn less money in oil revenues, the officials said, pointing to the Russian Finance Ministry’s announcement on Friday that Russia's budget deficit had reached $29 billion. 

Another sign of how well Western sanctions are working: Russia continues to reach out to cash-strapped autocracies such as North Korea and Iran for material support. And the Treasury Department has been targeting individuals and entities that try to facilitate those exchanges as well.  

The officials said the size of the sanctioning coalition was key to its success. 

“From our standpoint, one of the benefits of having such a broad coalition is that we don't need to use secondary sanctions, because oftentimes the reason you need to use secondary sanctions is because you want the reach of the action you take to be beyond your country. And given that we're working in lockstep with a coalition that includes 30 different countries, and also 50 percent of the world economy, and frankly with the countries that have the most important convertible currencies in the world, taking actions with them has far more of an impact, frankly, than secondary sanctions would,” one of the officials said.

Still, Russia continues to try to sneak oil out of the country and bring illicit goods like technology in, and they have found partners in that effort, particularly in the Black Sea. Last September, analysts noted that Russia was smuggling “more oil than ever” out of the country via ships that were often flagged to multiple nations and that would use  covert methods such as turning off their Automatic Identification System to disguise their activity and port of origin.

While that activity is ongoing, it’s not as covert as Russia thinks it is, the treasury officials said, and the companies that have done it are also economically vulnerable. 

“They only really have two options when it comes to insurance. Either they're being insured by Russia, which is a risky proposition,” or they're being insured by the small club of maritime insurers that provide protection and indemnity insurance, “which is a base that's given us a real angle in terms of putting pressure on these companies.”

Russia can restore and deploy its own tankers using covert means, but that, too, comes at a cost, the officials said. “If they're investing in buying old dilapidated ships to carry their oil rather than investing that money in buying tanks, or building precision missiles to fight their war in Ukraine... [that] is the exact kind of choice we want to set them up with.”