Europe’s Russia Sanction Regime Cracks

Russia is evading European sanctions. A single EU-wide authority must be created to make the controls effective.

The European Union recently adopted its 14th sanctions package against Russia, strengthening measures to hurt the crucial Russian gas industry, widening the flight ban against Russian airlines, and prohibiting the transport inside Europe of Russian goods by road. It’s the third package in the last six months that aims to stop Russia from circumventing sanctions after its war against Ukraine.

But the new sanctions will be far from the last unless Europe changes how it enforces its rules. The current weak national system must be junked. A powerful European-wide authority needs to be installed, ready to close current gray market loopholes and equipped to pursue criminal charges.

Sanctions circumvention is systematic. Between 2022 and 2023, EU exports to Kremlin-friendly countries surged by almost $3 billion — almost equal to the decline in direct exports to Russia. Through these parallel imports, Russia has managed to buy more than $70 billion worth of goods on secondary re-export markets since the start of the Ukraine war, filling the gap caused by sanctions restrictions.

EU sanctions remain too weak to protect Ukraine. Although the new package lists 27 banned vessels, the Russian fleet counts at least 1400 vessels transporting Russian crude oil and other sanctioned goods. These boats remain free to access under-regulated European ports and exploit transshipment and reexport blindsides through China and other Asian hubs.

EU national governments pursue few criminal prosecutions. While this may change with the recent EU decision to make sanctions circumvention a crime, the European Public Prosecutor’s Office lacks a mandate to prosecute sanctions evaders. National authorities continue to take varying approaches. Each government has a different legal interpretation of whether a sanctioned entity exercises “control” over an asset. No single definition exists of what constitutes a competent national authority to enforce sanctions.

These gaps open a direct route for sanctions circumvention with complex schemes involving shell companies and indirect ownership. Often, simple schemes suffice. Investigative journalists found that sanctioned Belarusian companies were avoiding sanctions by changing the name of the sanctioned entity or falsely claiming the country of origin of goods. While one designated EU member state sanctions authority may catch a circumvention attempt, one of the 159 other EU authorities may not.

Reform is required. A good model is the EU’s experience forging an anti-money laundering regime that requires banks to disclose the ultimate beneficial owners of their client’s assets and transactions.

Like the current sanction regime, Europe’s anti-money laundering regime initially proved toothless. The European Central Bank and European Commission failed to crack down on massive Russian laundromats in Europe for decades until a US government intervention served as a wake-up call when it banned a major Latvian bank from accessing dollar markets.

The EU recently established a bloc-wide anti-money laundering authority. It will directly supervise major banks. The authority will also be responsible for guiding policy implementation across member states, ensuring alignment.

A single European-wide sanctions authority would fill a similar purpose – coordinate between member states, and directly supervise high-risk sectors or stakeholders. It would set the necessary single binding rulebook and ensure accountability for correct implementation. It would also, for example, implement stringent due diligence requirements similar to Know Your Customer rules in banks.

A good first step was naming experienced diplomat David O’Sullivan as EU Sanctions Envoy. Since the invasion of Ukraine Europe has displayed strong political will to impose sanctions against Russia. But it’s one thing to take a political decision and name a sanctions envoy. It’s another to enforce the decision. Europe must step up and reform how it enforces sanctions to make them effective.

Ēriks Selga is a Non-resident Fellow with the Digital Innovation Initiative and Transatlantic Leadership program at the Center for European Policy Analysis. Ēriks is a former Digital Innovation Baltic Fellow at CEPA and is a Visiting Researcher at the Latvian Institute of Foreign Affairs, Associate Scholar at the Foreign Policy Research Institute, and a current Ph.D. Candidate at the University of Hong Kong Faculty of Law.

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