EXCLUSIVE: Russian Military Uses China in Sourcing Banned Tech from 59 U.S. Firms

Russia is exploiting loopholes in export controls to buy vast quantities of technology from the West that it is using to fight its war against Ukraine, with much of the material passing through China, Newsweek has found. More than 60 percent of the imported critical components in Russian weapons are coming from U.S. companies.

The scope of the tech still reaching Russia is significantly larger than acknowledged by Western officials, who frequently tout the export controls and sanctions system they have imposed against Moscow—in part to try to stop it from getting components for weapons.

Russia imported $20.3 billion in components associated with military equipment between March and December of last year, according to an analysis by KSE Institute, a think tank at the Kyiv School of Economics, to which Newsweek was given exclusive access. The figure is higher than previously reported and represents just a 15 percent drop from the year prior to Russia's invasion of Ukraine in February 2022.

Companies based in the U.S. produced 64 percent of the dual-use goods—components that can be used for military purposes, as well as for consumer products such as automobiles and household appliances—that Russia imported between March and December of 2022, according to the Russian trade data.

Overall, Russia bought technology that had been manufactured by 155 companies headquartered in the U.S. or Europe, as well as in Asia and the Middle East. According to separate data compiled by Ukrainian authorities, 66 percent of the foreign critical components found in weapons systems the Russian military has used in Ukraine were manufactured by companies headquartered in the U.S.

"What we see from this data is that Russia's military still relies mostly on Western components" for its weapons systems, Elina Ribakova, the director of the International Affairs Program at the Kyiv School of Economics, told Newsweek.

Some aspects of Russia's recent trade in foreign technology have previously been reported. But taken together, the KSE report and Newsweek's further reporting provides the most comprehensive portrait to date of the extent to which Russia is evading export controls and sanctions.

The picture that emerges is one of weak trade compliance practices in parts of the private sector, myriad enforcement challenges for Western governments, and a complex global supply chain for dual-use technology.  This account is based on new Russian trade data and previously unreported information compiled by Ukrainian authorities on the Russian weapons systems recovered from the battlefield, as well as on interviews with American and European officials, export control experts, military analysts, and others, some of whom requested anonymity to discuss sensitive intelligence matters.

Between March and December of 2022, Moscow imported 72 percent of the total value of its critical components from China, an increase from just 22 percent during the same period the previous year, according to the Russian trade data.

But most of the dual-use technology that Russia imports from China is produced in America and Europe, the data shows, undercutting the argument by Western leaders that export controls are starving Moscow of the advanced technology it needs to continue fighting the war in Ukraine.

The KSE report revealed a trove of new details on the specific Russian weapons systems in Ukraine that rely on Western technology, based on Ukrainian authorities' analysis of hardware recovered from the battlefield. It also provided the first snapshot of Russian trade data from the first quarter of 2023. The trade data is broken down by detailed descriptions of the items imported, the countries they came from and the companies that manufactured the goods.

Moscow has less access to cutting-edge components than it did before the war, and it's widely believed that over time the export controls will further degrade Russia's defense sector, leading to serious long-term problems for its military.

But 16 months into the conflict, it's clear the U.S. and its allies need to take additional steps to ensure that the export controls achieve their desired results, said Emily Kilcrease, the director of the Energy, Economics and Security Program at the Center for a New American Security.

"We're at the point now where the export controls should start having an impact. But Russia is adapting," Kilcrease said. "We've taken the big swing we could take. Now it's really about enforcement."

American companies whose goods were found in Russian weapons in Ukraine told Newsweek they don't do business with Russia and condemned the use of their products in the war.

"Companies have to do better. They just have to do better" in terms of complying with export controls and sanctions, said Erika Trujillo, the co-founder and managing director of SEIA, a firm based in Munich, Germany that advises multinational companies on trade compliance, export controls and sanctions.

"With Russia, where we're at isn't enough," she said.

Evasion Rampant, Despite Massive Sanctions Regime

The export control and sanctions regime against Russia is described by the Biden administration as the largest ever put in place against a major economy. The measures by the U.S. and its allies have targeted Russia's energy production, financial systems and access to the technology.

Yet according to Ukrainian data obtained by KSE Institute, Ukraine has identified 1,057 foreign components in 58 different pieces of critical Russian military equipment. Microchips and processors comprise nearly half the total imports, but Russia also imports numerous other goods used in navigation and communications systems and other elements of modern warfare.

In some cases, the flow of critical components actually increased in the first three months of this year. Russia imported 28 percent more bearings and 27 percent more navigation and sensor systems in the first quarter of 2023, compared to the final quarter of last year, according to the trade data.

Ukrainian authorities found imported microchips, processors, transceivers, memory devices, transistors, DC-to-DC converters and other components in four kinds of Russian-made cruise missiles: the Kh-59, Kh-101, Kalibr and Iskander-K.

Similar foreign-made tech was found in seven types of Russian armored vehicles and artillery units, including the Tor-M2, a short-range air defense missile system, and the T-72 battle tank. Imported components were also discovered in seven different kinds of drones, among them the Russian Orlan-10 and two Iranian models, the Shahed-131 and Shahed-136.

Iran's well-documented drone sales to Russia reflect one way Moscow has managed to evade international export controls. There is little the U.S. and allies can do to block the Caspian Sea trade route used by two pariah states that have long been in conflict with the West.

But most of Moscow's dual-use imports are much harder to ferret out. Experts said the typical evasion case involves a shipment of critical components that is sold and resold several times, often in a series of deals between legitimate businesses, before eventually winding up in China or another country where a Russian shell company can purchase the goods and export them to Russia.

Russia routes dual-use goods through the Caucasus, parts of Central Asia and the Middle East. But trade data shows China is by far the largest transhipper of microchips and other technology to Russia. Between last October and December, Russia imported 87 percent of its microchips from sellers in China, though only 40 percent were manufactured in China.

Newsweek reached out for comment to the Ukrainian government and Russia's foreign, defense and economic development ministries. Newsweek also requested comment for this story from China's ministries of national defense, foreign affairs and commerce, as well as from Iran and Turkey's foreign affairs ministries.

The official Russian trade data doesn't include detailed specifications for microchips and other technology imports, making it hard to determine the quality of the microchips and other goods that Russia imports. But the vast majority of the microchips that Russia uses in weapons in Ukraine are manufactured in Western countries, rather than China, which is years behind in chip-making technology.

Lack of Trade Compliance Resources Hobbles Enforcement

American companies have played an unwitting role as the largest suppliers of dual-use goods to Russia since the outbreak of the war.

Reuters and other news outlets have reported that Russia has imported critical components produced by a handful of large U.S. firms since the invasion began. But the share of Russia's dual-use goods that come from major American tech companies is larger than was previously known, and Newsweek's findings also show Russia is importing the technology from a much wider range of foreign companies than past reports have documented.

Critical components made by five U.S.-based companies—Analog Devices, Texas Instruments, Microchip Technology, Intel Corporation, and Advanced Micro Devices (AMD)—account for 52% of the tech imports found in Russian weapons systems, according to data compiled by the Ukrainian authorities and obtained by KSE Institute. Those companies are the top five producers of dual-use goods found in Russian weapons.

But Russia is also gaining access to goods from a larger number of medium and small-sized firms than has previously been reported. Of the 155 companies whose critical components were identified in Russian military equipment, 59 were based in the United States, the trade data shows.

Russia also imported critical components from 18 other countries spread across Asia, Europe, and the Middle East since the start of the war in Ukraine. Along with China, Turkey has become an important conduit for critical components shipped to Russia. Turkey is a NATO member but has not joined the U.S. and EU in imposing heavy sanctions on Russia.

Experts stressed that manufacturers can't be held solely responsible for Moscow's export control evasion.

Export control analysts told Newsweek they did not know of any examples since the start of the war where a company based in the U.S. or in an allied nation knowingly sold critical technology directly to Russia for the express purpose of helping Moscow's war effort.

The share of direct sales of critical components to Russia from foreign firms has plummeted in response to the war, from 45 percent the year before the invasion to just 2 percent from March to December of last year.

Newsweek reached out for comment to the five top U.S. producers of dual-use goods found in Russian military equipment. All five companies told Newsweek they comply with export controls and sanctions and do not sell products into Russia or Belarus, a Russian ally.

"Intel will continue to comply with all applicable export regulations and sanctions in the countries in which it operates," a spokesperson for the company said.

"We condemn the illegal use of our products," a Microchip spokesperson said. "We take our responsibility as a good corporate citizen seriously, and comply with applicable laws, including export controls and trade sanctions."

An AMD spokesperson said the company has a "robust export compliance program in which we conduct due diligence on all our potential customers and distributors and require our authorized distributors to comply with all U.S. and global export regulations." The spokesperson added that AMD "does not support the use of our products in Russian military equipment in the war against Ukraine or for applications in which they were not designed or intended."

A spokesperson for Analog Devices said the company is "strengthening our efforts to identify and counter" evasion by Russia, "including implementing enhanced monitoring and audit processes," and other steps.

"We believe these measures will help to reduce unauthorized resale, diversion, and unintended misuse of our products," the Analog Devices spokesperson added.

Texas Instruments said in a statement that the company "complies with applicable laws and regulations in the countries where we operate. We do not support or condone the use of our products in applications for which they weren't designed."

Companies based in the United States are generally required to vet foreign trading partners such as manufacturers and distributors, as well as their intended final customers—known as "end-users," in industry parlance—to make sure that products don't fall into the wrong hands.

Private companies employ trade compliance officers in the U.S. to handle the vetting process. If a manufacturer receives a suspicious-looking order for a dual-use good, the officers can check to see if the foreign importer in question is subject to sanctions by the Commerce Department, State Department or other agencies.

But the government depends on private companies to do their own due diligence and provide accurate information about their trade to customs agencies. The regulatory process is based in effect on an honor system that can be easily manipulated by foreign companies, who can falsify customs declarations or in other ways obscure the true nature of their business activities within a complicated supply chain.

As a result, spotting red flags isn't easy, said Trujillo, the head of the risk management firm and a former trade compliance official at the Commerce Department.

"Corporate ownership structures are very hidden, especially in countries like Russia and China," said Trujillo. "It's particularly difficult to do due diligence in China. You'll see a company pop up, do one or two transactions, and close the next day."

It's also a badly kept industry secret that trade compliance departments are deeply understaffed, and often lack the time and resources to analyze hundreds or thousands of annual transactions, she said.

"You have billion-dollar companies doing massive global business, and they may have five trade compliance officers, if that," Trujillo said. "And what's shocking is that despite rising geopolitical tensions, compliance departments are still facing significant budgetary pressures."

Olga Torres, a member of the State Department's Defense Trade Advisory Group, said that as the war has continued some larger U.S. companies have taken steps to strengthen their trade compliance practices.

"We're seeing established American companies taking it very seriously. We're more concerned about smaller shops that may not be as sophisticated about compliance," said Torres, who runs a legal practice that specializes in trade law.

Governments must do more to slow Russia's imports of dual-use goods, but ultimately it "comes down to the challenges with compliance," said Kimberly Donovan, the director of the Economic Statecraft Initiative at the Atlantic Council and a former National Security Council advisor.

Export Controls 'Only Go So Far'

Newsweek reached out to the White House and U.S. Commerce Department for comment regarding enforcement measures.

A Commerce Department official told Newsweek that Russia's attempts to circumvent export controls and sanctions were proof that the restrictions are working. The official said the U.S. was working closely with the EU and other allies to crack down on evasion, and pointed to a long list of actions the Biden administration has taken since Russia invaded Ukraine.

Last month, the U.S. and other members of the Group of Seven (G7) nations agreed to implement new export controls and sanctions measures aimed at reducing Russia's access to dual-use goods. The deal came three months after the Biden administration announced new rules that restrict technology trade between Russia and the U.S.

But the United States and other countries in the coalition backing Ukraine still face significant obstacles to boosting enforcement that go beyond the challenges plaguing the private sector.

Western countries have struggled to coordinate their trade laws since the Russian invasion of Ukraine. Nations have different, oftentimes conflicting laws regulating trade, and export controls against Russia differ from country to country. The patchwork system is further complicated by a legal principle underpinning U.S. trade law known as "extraterritorial jurisdiction." The authority allows America to enforce its trade laws outside of the country, anywhere in the world where goods with U.S. components are traded.

The EU has taken steps to expand its authority to regulate trade, in order to bring its laws in line with the U.S. model. But gaps in the two systems remain, and some countries like China do not  recognize America's extraterritorial claims.

The G7 nations have pushed India, Brazil and other countries that have not taken sides in the Ukraine war to join the coalition of major economies sanctioning Russia. But the effort has so far failed to bear fruit, as many of those countries do a significant amount of trade with Russia.

"What we're seeing now is that the G7 can only go so far," Donovan said.

The Bureau of Industry and Security, an agency within the U.S. Department of Commerce, is responsible for regulating the export of dual-use goods. But the agency employs just nine export control officers, known as ECOs, who conduct end-use checks of goods in other nations to determine whether they violate U.S. law.

There are only two ECOs in China. The two officials, who are stationed in the U.S. Embassy in Beijing, must receive approval from the Chinese government to conduct end-use checks, a rule that makes it all but impossible to conduct independent reviews. The U.S. has not had an export control officer in Moscow since late 2017, when Russia forced the ECO to leave in retaliation for sanctions over its 2014 invasion of eastern Ukraine.

Even before the position disappeared, there was limited funding to conduct the needle-in-a-haystack job of searching for suspicious trade inside Russia, said Donald Pearce, who served as the ECO in Russia from 2004 to 2007. There is no easy way to tell whether transactions violate sanctions when U.S. officials are dependent on governments or organizations that want to hide their activities, he said.

"You're never going to solve this problem" entirely, Pearce said.

Eliminating black market trade altogether is impossible, but that is no reason not to try, said Daniel Fried, who served as the Obama administration's chief Russia sanctions negotiator.

"Export controls always work imperfectly. Period. But they don't have to work perfectly to be effective," said Fried, who served as U.S. ambassador to Poland under former President Bill Clinton. "An imperfect, leaky sanctions regime nevertheless imposes a cost on the Russian economy, and the military in particular."

Ribakova, of the KSE Institute, said Russia's sanctions evasion shows governments must impose steeper costs.

"As of now we don't have a framework to hold companies accountable for their products being used to attack Ukraine," Ribakova said.