Using the financial system to enforce export controls

Russian imports of battlefield goods that are subject to export controls, including from Western producers, have surged since mid-2022

Publishing date: 30 April 2024
Authors: Benjamin Hilgenstock Elina Ribakova Guntram B. Wolff Anna Vlasyuk

Download PDF

Russian imports of battlefield goods that are subject to export controls, including from Western producers, have surged since mid-2022 and reached levels close to those prior to Russia’s full-scale invasion of Ukraine. Russia thus continues to be able to acquire critical foreign components that it needs for its military industry. These imports occur via mainland China, Hong Kong, Turkey and the United Arab Emirates, while other countries including Armenia, Georgia, Kazakhstan and the Kyrgyz Republic have also seen massive increases in imports from the EU and other coalition countries that likely end up in Russia. The implementation and enforcement of export controls faces major challenges, which are multifaceted and centre around complex supply chains, lack of transparency in documentation and opaque financial structures. The issues are familiar from anti money laundering (AML) and countering financing of terrorism (CFT) frameworks, where much progress has been made in the last two decades. A similar approach could help in rendering export controls effective. We propose: First, financial institutions could be tasked to play a role in the monitoring of the trade in export-controlled goods and the blocking of illicit transactions, building on their experience with due diligence in financial transactions. Second, non-financial companies could learn from banks’ efforts in the AML/CFT sphere to implement proper due-diligence procedures and to ensure export controls compliance. Public-sector investigations and appropriate fines are critical to increase the incentives for firms to act. Technology sanctions are going to be part of the economic statecraft toolbox for the foreseeable future. The Russia case will test their effectiveness and credibility, or lack thereof.

About the authors

Benjamin Hilgenstock

Benjamin Hilgenstock is a Senior Economist at KSE Institute (Kyiv School of Economics) focusing on international sanctions on Russia and their impact on the Russian economy, including in the areas of energy, trade, and finance. He was previously an Economist at the Institute of International Finance working on macroeconomic analysis of key emerging markets, primarily in Central/Eastern Europe and including Russia, Ukraine. He was also an analyst with the International Monetary Fund’s Research Department. He holds an MA from Johannes Gutenberg-Universität Mainz, extensive experience abroad.
Elina Ribakova

Elina Ribakova is a Non-resident Fellow at Bruegel. She specialises in global markets, economic statecraft and economic sovereignty.

Her research covers economic statecraft, the EU's strategic autonomy, Russia and Ukraine.

She speaks English, French, Latvian, Russian and Spanish.

She is also a Non-resident Senior Fellow at the Peterson Institute for International Economics and a Director of the International Affairs Program and Vice President for foreign policy at the Kyiv School of Economics. She has held several senior-level roles, including deputy chief economist at the Institute of International Finance in Washington, managing director and head of Europe, Middle East and Africa (EMEA) Research at Deutsche Bank in London, leadership positions at Amundi (Pioneer) Asset Management, and director and chief economist for Russia and the Commonwealth for Independent States (CIS) at Citigroup. Prior to that, she was an economist at the International Monetary Fund in Washington (1999–2008), working on financial stability, macroeconomic policy design for commodity-exporting countries and fiscal policy. Elina holds an MSc in Economics from the University of Warwick and an MSc in data science from the University of Virginia.
Guntram B. Wolff

Guntram Wolff is a Senior Fellow at Bruegel. He specialises in a range of issues, including defence economics, geoeconomics, climate policy and European governance.

He covers topics such as European rearmament and the geoeconomics of trade, finance, climate policy and euro area fiscal policy.

He speaks English, German, and French.

He is a Professor of Economics at the Université libre de Bruxelles (ULB) and also a fellow at the Kiel Institute for the World Economy. Previously, he was the director of Bruegel (2013-22) and the German Council on Foreign Relations (2022-24). He worked on the macroeconomics and governance of the euro area at the European Commission and the research department at the Bundesbank. He also worked as an external adviser to the International Monetary Fund. From 2012-16, he was a member of the French prime minister’s Conseil d’Analyse Economique. He holds a PhD in Economics from the University of Bonn.

His detailed CV and publications are available at www.guntramwolff.net
Anna Vlasyuk

Theme: Global economy and trade
Keyword: trade policy geopolitics financial regulation
Language: English