On Economic Pressure

Interesting that the Russians may have learned a good deal on innovations in sanctions-evasion from the North Koreans:

A comparison shows how Russia and North Korea have independently exploited the same gaps in the international maritime sector, including name and flag laundering, flags of convenience, and fraudulent registries. Here, I focus on why those tactics remain viable, tracing how permissive registry systems enable their reuse and rapid scaling.

Shadow fleets persist in part because sanctions regimes often fail to impose meaningful costs on the institutions that enable them. Where registry operators face stronger incentives to register vessels than to scrutinize them, evasion networks remain viable. A combination of incentives for due diligence and penalties for continued registration of known shadow vessels would help close this gap. Revenue incentives are not the only driver, but they help explain persistent tolerance for high-risk registrations.

Of course the Ukrainians have figured out kinetic means for resolving some of the legal problems:

Russia has been forced to suspend shipping in the Sea of Azov after 90 vessels were targeted by Ukrainian drones in less than a week.

Ukraine’s drone forces chief, Robert Brovdi, said on Sunday that his units had hit 10 tankers and four ferries overnight, as well as a major oil refinery in the city of Syzran. There had been several strikes on electricity substations in occupied Crimea, he added.

“The technological humiliation of the [Russian] empire continues. It will fall because of Crimea,” Brovdi wrote on social media. He said Moscow’s shadow fleet, which transports sanctioned oil products around the world, was “noticeably shrinking” and could no longer use the Kerch strait, connecting the Sea of Azov with the Black Sea.

Perhaps more interesting, Russia has established channels for sanction-evasion smuggling through developing intelligence networks in Japan, Europe, and beyond:

Soon after troops invaded Ukraine in February 2022, Western leaders expelled hundreds of Russian spies from their capitals and blacklisted companies with ties to the Kremlin.

The coordinated effort was intended to make it harder for the Kremlin to collect intelligence and buy equipment like microchips, transmitters and the machinery used to make weapons.

Since then, officials say, dozens of those banished spies have turned up in an unexpected place: Japan.

The country’s weak espionage laws and flourishing high-tech industry have made it a crucial piece of the Russian war effort. Ninety percent of Russian missiles and drones contain Japanese components, according to Ukrainian government estimates.

At the heart of the operation in Tokyo is a secretive Russian military intelligence unit known as the 20th Directorate, whose role has never been publicly disclosed. Posing as diplomats or businesspeople, its officers work to buy or steal battlefield technology and smuggle it into Russia, according to current and former officials at five Western intelligence agencies.

The man overseeing the 20th Directorate’s operation in Tokyo maintains a cover identity as an employee of the Russian state airline Aeroflot, according to current officials from four of those intelligence agencies. He plays a crucial role in supplying Russia’s war machine.

The takeaway from this isn’t “sanctions don’t work,” although it’s clear that they tend to be less effective than their initiators would like. The takeaway, rather, is that sanctions are a give and take process in which professionals on both sides need to remain engaged. Not unlike war, sanctions are a legal-economic environment in which adversaries innovate continuously in order to gain advantage. Power politics are complicated! See also this article from Jess Horveson on counter-sanctions law:

In late June, the Wall Street Journal reported that senior lawmakers in Beijing advanced a bill that would let Chinese state prosecutors bring civil “public-interest” suits against foreign organizations and individuals who allegedly damage China’s interests. The bill would add to the growing set of laws that Beijing and other countries have written to counter foreign sanctions.

Nobody likes being told what to do — least of all governments. When Washington imposes sanctions, it isn’t only barring American citizens from dealing with a target. It also warns foreign companies, in other countries, that they too must cut off the target or risk losing access to the U.S. market and financial system. Any sovereign state would reasonably bristle at that kind of reach into their domestic affairs. But when the meddling state controls the world’s dominant currency, the rest of the world typically chooses to tolerate the meddling albeit with protest and the occasional attempt to fight back. But historically those attempts to counter, which go back decades, were pure theater: professions of sovereignty that let policymakers feel that they’d taken a stand without ever really being enforced. That is starting to change.