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The author is a non-resident senior fellow at the Peterson Institute for International Economics and director of the international affairs programme at the Kyiv School of Economics
Russia’s latest horrendous attack on a children’s cancer hospital in Kyiv earlier this month has raised serious questions about how the country can produce missiles and drones at scale using western components. Despite numerous export controls, western companies still bear much of the responsibility for enabling Russia’s access to these critical parts. To make export controls effective, we must hold them accountable.
In an unprecedented multilateral action, more than 50 countries imposed sanctions on Russia, including export controls, shortly after February 2022’s full-scale invasion of Ukraine. These have increased production costs for Russia’s military and stalled its supply chains. However, they remain a whack-a-mole game played by a few hundred government employees against a flood of distribution networks circumventing them.
Making export controls effective requires corporate enforcement — a government euphemism for punitive measures against our own corporations — complemented by secondary sanctions and a significant increase in funding for oversight agencies.
Russia’s military-industrial complex relies on western-made components. In 2023, Ukrainian authorities launched a unique resource that provided unparalleled insights into Russia’s military: Components in the Aggressor’s Weapon, soon to be followed by Instruments of War (foreign equipment used by the aggressor in the production of weapons).
The authorities have identified 3,638 components in 134 distinct weapon units. For example, a Shahed-238 UAV that terrorises Ukrainian civilians and critical infrastructure with electronic components from countries such as Canada, China, Germany, the Netherlands, Switzerland, Taiwan and the US. These findings confirm Russia’s own research that its military is 70-90 per cent dependent on western-made components.
In its recent attacks on Ukraine’s civilian infrastructure, Russia has deployed new types of weapons, specifically the Kh-69 and Zircon missiles. This demonstrates that the country possesses the capability to innovate in weapons that demand even more sophisticated western components. Russia is still capable of adaptation, but it does so with western help. It does not have to be that way.
Since Russia’s full-scale invasion of Ukraine, coalition nations have enhanced the consistency of their export control regimes and strengthened enforcement. The G7 has in effect become a key co-ordinating body for sanctions on Russia. Co-ordinators from the US, EU, UK and other countries have been working together to encourage third countries to prevent Russia’s evasion of sanctions.
Recent US measures to involve financial institutions in disrupting the distribution networks are already having an impact. China’s banks are increasingly scrutinising or refusing transactions with Russia. However, no systemically important institution has yet faced US sanctions. To be effective, the US must not only threaten but use its powerful tools. And while involving financial institutions is valuable, successful implementation requires the participation of corporations themselves.
Since February 2022, investigative journalists, think-tanks and advocacy institutions have provided substantial evidence on how western companies’ components reach Russia, attracting the attention of policymakers and legislators. The issue is clear to everyone except the corporations involved. In response, most businesses have hidden behind boilerplate legalistic language, often from trade organisations rather than the companies themselves.
In the US, recent congressional hearings have focused on corporate responsibility for fuelling Russia’s war in Ukraine. Think-tanks have contacted companies whose products are found in Russian weapons to solicit their responses. The US departments of commerce and justice are focusing on companies, too, even if they have not shown the same enthusiasm for aggressive enforcement as with China.
US companies have a responsibility not to violate export control regimes. This involves preventing Russia from accessing certain products and restricting almost all exports to Russia for military end-use or by military end-users. Companies must invest more effort into strengthening due diligence across their distribution networks to comply with export controls. When this fails, only multibillion-dollar penalties for export control evasion, similar to those faced by banks for money laundering and terrorist financing, might change corporate risk-reward calculations.