Russia Circumvents Sanctions, Receives $2.3 Billion in Dollar and Euro Notes Despite Western Ban

Since March 2022, Russia has managed to import approximately $2.3 billion in dollar and euro notes, despite a ban imposed by the United States and the European Union on exporting such currencies to the country. This revelation, reported exclusively by Reuters, is based on customs data that had not been made public until now, revealing how Moscow has found ways to sidestep these financial restrictions.

The customs records, covering the period from March 2022 to December 2023, were obtained from a commercial supplier that tracks and compiles such information. Although Reuters could not access more recent data, these records show that cash was transferred to Russia from countries like the United Arab Emirates and Turkey, both of which have not imposed trade restrictions on Russia. Interestingly, over half of the total cash amount did not have a specified country of origin in the records.

According to Dmitry Polevoy, head of investments at Astra Asset Management in Russia, many Russians still prefer holding foreign currency in cash, particularly for travel abroad, small imports, and domestic savings. "For individuals, the dollar is still a reliable currency," Polevoy told Reuters.

In response to the invasion of Ukraine, Russia's central bank quickly imposed restrictions on foreign currency cash withdrawals by individuals to support the weakened ruble. The customs data also revealed that only $98 million in dollar and euro notes left Russia between February 2022 and the end of 2023.

In 2022, Russia began labeling the dollar and euro as "toxic" due to sweeping sanctions that severely restricted its access to the global financial system, including the freezing of approximately $300 billion of the Bank of Russia's foreign exchange reserves in Europe. Although China's yuan has since overtaken the dollar as the most traded foreign currency in Moscow, significant payment issues persist. However, the dollar and euro remain crucial for trade and travel as Russia seeks to reduce its reliance on hard currencies.

Aero-Trade, a duty-free shopping company and subsidiary of the French cosmetics group Yves Rocher, was identified as the single largest entity declaring foreign exchange during this period, reporting about $1.5 billion in notes. The company recorded 73 shipments of $20 million each, all cleared at Moscow's Domodedovo Airport, an international hub near the company's headquarters. These shipments were labeled in customs declarations as barter or proceeds from trade on board.

Aero-Trade's owner, Artem Martynyuk, disputed the authenticity of the customs records in a statement to Reuters but declined to comment further. The company asserted that "Aero-Trade is not engaged in the supply of hard currency in Russia."

One shipment of 20 million euros handled by Aero-Trade in February was reportedly imported by Yves Rocher Vostok, a subsidiary of the French cosmetics giant. However, the records did not disclose the country of origin or the supplier. Groupe Rocher, the parent company in France, denied any connection with Aero-Trade, stating that neither the group nor Yves Rocher Vostok had ever been involved with the company or requested the transfer. "Yves Rocher Vostok, like all Groupe Rocher entities, complies with the law," a spokesperson said, emphasizing that the company "has never tried and will never try to circumvent sanctions on imports of dollar and euro banknotes into Russia."

The customs records also revealed that more than a quarter of the $2.3 billion in notes brought into Russia was handled by banks, often as payment for precious metals. Russian banks received $580 million in cash from abroad between March 2022 and December 2023, exporting nearly equivalent amounts of gold and silver. In many cases, the precious metals were shipped to the companies that supplied the notes.

For instance, Vitabank, a Russian financial institution, imported $64.8 million in notes from the Turkish gold trading company Demas Kuyumculuk during 2022 and 2023. Simultaneously, Vitabank exported $59.5 million in gold and silver to Demas. A source familiar with Demas' activities confirmed that the firm was involved in several cash-for-gold transactions with Vitabank and two other Russian banks between March 2022 and September 2023.

The source explained that delivering banknotes from the UAE to Russia was the only way Demas could fulfill long-term contracts with Russian gold suppliers signed before Western sanctions took effect, while still adhering to Turkish and international regulations on cross-border payments. The source added that breaching these agreements would have exposed Demas to financial penalties and reputational risks, emphasizing that the company has never done business with entities under Western sanctions and strictly follows all national and international compliance procedures. By the third quarter of last year, Demas had completed all pre-war contracts with Russian companies and ceased its two-way transactions.

Other significant cash importers included entities controlled by Rostec, the state-owned military-industrial group. Rostec, under US sanctions since 2014, did not respond to questions from Reuters regarding the cash payments it received.

As Russia adapted to the sanctions, a European Commission spokesperson noted that the EU engages with third countries when it suspects sanctions are being circumvented but declined to comment on individual cases.

The customs records also highlighted a surge in cash imports to Russia in the months leading up to the invasion of Ukraine. Between November 2021 and February 2022, $18.9 billion in dollar and euro notes entered the country, compared to just $17 million in the preceding four months. Daniel Pickard, head of the international trade and national security practice group at US law firm Buchanan Ingersoll & Rooney, suggested that this increase indicates some Russians were preparing for potential sanctions. "While the US and its allies have learned the importance of collective action to maximize economic consequences, Russia is learning how to avoid and mitigate the same consequences," Pickard remarked, adding that the reported figures likely underestimate the true scale of currency flows.

By fLEXI tEAM