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3 Ways Russia Can Evade Sanctions

3 Ways Russia Can Evade Sanctions

3 Ways Russia Can Evade Sanctions
A protester in Belgium holds a banner calling for Russia to be banned from the SWIFT banking system. Photo by Omar Havana/Getty Images)

Russia’s invasion of Ukraine has resulted in the largest, most sweeping set of sanctions ever aimed at a country since World War 2. On Saturday, a coalition of Western nations pledged to cut off Russia’s banking system from the rest of the world by booting it off the SWIFT (“Society for Worldwide Interbank Financial Telecommunication”) secure messaging platform that is the primary way banks conduct international trade (although as we’ve pointed out, it’s not certain that SWIFT will comply with their wishes). That is on top of actions taken earlier to isolate individual Russians associated with the war.

If the strict measures are carried out, they will likely devastate the already shaky Russian economy, and will create incentives for wealthy Russians and some Russian businesses to find ways around them. Here are three strategies that are probably already in place and likely to grow:

  1. Blockchain transfers. It can be argued that surreptitious money transfers are precisely why cryptocurrency exists. There is next to nothing that Western governments can do to prevent the transmission of digital currencies in and out of Russia. True, in most cases the parties can ultimately be identified on a blockchain ledger, and that could pose a sanctions compliance problem for the person or institution outside Russia who participated in such a transfer, but that identification could take years to emerge. It is complex and expensive to launder large quantities of money this way, but for some it will prove irresistible.
  2. Pivot to China. China’s absence from the economic sanctions coalition is conspicuous. Although the relationship between China and Russia is hardly perfect, Chinese authorities might see some benefit from helping Russia out. At least a trillion dollars of Russian wealth is held in Western banks. Paul Bracken, professor emeritus at Yale’s School of Organization and Management, describes a system whereby large amounts could be transferred. “Get China to deposit the Russian money in, say, a Lithuanian bank. That’s in the EU, which makes it then easier to move to a legitimate bank,” Bracken said in an interview. He notes that there are probably limits to how much laundering China would want to do, but perhaps in combination with helping Russia obtain technology from Chinese companies, the temptation will be there. More legitimately, when Russia feared being cut off from the SWIFT system following the 2014 invasion of eastern Ukraine, it created SPFS, an alternative bank messaging system. To date its use has been largely limited to Russian banks, but it might persuade Chinese banks to participate.
  3. Passports for sale. If it eventually becomes impossible for a Russian oligarch to open a bank account in, say, Malta, a simple solution presents itself. Typically, when you open a European bank account, you are asked to present a passport, but rarely are you asked to present all your passports. And so if you obtain and present a Maltese passport, the bank will be hard-pressed to prove that you are a Russian citizen. “I don’t think the big banks are going to be in a hurry to cut these guys off,” says Atossa Araxia Abrahamian, author of The Cosmopolites: The Coming of the Global Citizen, which explores the growing phenomenon of wealthy people obtaining multiple passports. Most Western countries, including the United States, have some kind of system which grants citizenship or special visas to individuals who are willing to invest in their economy.

Here Are 3 Ways Russia Can Evade Sanctions

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