As part of the cross-border project Women Investigative Journalists Network (WIJN), journalists analyzed how Russia circumvents international sanctions. wrote about how and why, despite sanctions, imports of dual-use electrical equipment from Turkey and Kazakhstan to Russia increased.
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Today we are publishing an investigation by Georgian journalist Nino Ramishvili about the role Georgia plays for Russian imports bypassing sanctions. The original version of the article in Georgian can be read here.
The Georgian government says it is in full compliance with international sanctions imposed on Russia over the war in Ukraine.. However, information obtained by Studio Monitor raises concerns that the territory of Georgia could be used by Russian business to evade Western sanctions.
The “long arm” of computer technology
IT Distribution was founded in 2019 by Belarusian citizen Sergei Kopitaenko in the village of Katskkh in Chiaturi, Georgia.. The company is engaged in the wholesale trade of computers, computer peripherals and software. The warehouse is located in the Hualingi Tbilisi Sea Plaza shopping center in Tbilisi.
In March 2023, Kopitaenko, together with his Russian partner, founded Digital Retail LLC in Moscow, which, like the Georgian company, is engaged in the wholesale trade of computers, peripherals and software.
According to data received by Studio Monitor from Georgiastat, IT Distribution is one of the ten largest importing companies from China to Georgia in 2023, and is also on the list of exporters from Georgia to Armenia.
The company exported various types of electronic equipment to Armenia and Kazakhstan, including system units, processors and controllers, devices for receiving, converting and transmitting sound, images or other data.
In accordance with international sanctions, supplies of these devices to the Russian Federation have been prohibited since 2023 by the European Union, USA, Japan and the UK. Since June, their export to third countries, from where these products can enter Russia, has also been limited. As a result of cooperation between the four above-mentioned countries, a list of dual-use goods has been developed, since it has been established that these products are used by Russia in aggression against Ukraine.
“It’s impossible, but it’s possible”
“We cannot control what the customer will do with the product when he receives it,” IT Distribution representative Keti Maskhulia told Studio Monitor.. – This should be controlled at the state level, but the state does not have such levers. So far, neither customs nor any other authority has had any complaints against us.”
In early June, the head of the US State Department's sanctions coordination office, James O'Brien, said that sanctions evasion was a “significant problem”. And that he is discussing these issues with various countries, including Turkey, Kazakhstan, Georgia, the United Arab Emirates and Armenia. At the time, POLITICO appended O'Brien's statement with information received from customs that trade with Russia in the South Caucasus and Central Asian countries of Georgia, Kazakhstan and Armenia had increased since the start of the war in Ukraine.
Since June 2023, the European Union has introduced the 11th package of sanctions against the Russian Federation. After this, the fight against evading sanctions restrictions intensified even more.. In particular, the transit of such dual-use goods and technologies that could help strengthen Russian military power was limited.
Studio Monitor received from Gruzstat data on trade in electronic goods from the sanctions package. As a result, it was possible to find out that many companies were involved in the transit of these products to Georgia, including in 2023, when these sanctions were introduced.
Imports from China to Georgia over the 10 months of 2023 increased by almost 23% compared to the same period in 2022 and amounted to $1.132 billion. During this time, mainly electrical equipment was purchased from China.
Turkish trace
In 2023, many Georgian companies purchased dual-use electrical appliances from both China and Turkey.
In the first 10 months of 2023, the pace of imports from Turkey compared to the same period of the previous year increased by about 10% and amounted to $2.104 billion.
In January – September 2023, the Georgian company Geoimpex LLC imported dual-use electrical appliances from Turkey and then exported them to Armenia. The director of the company, Besik Koridze, told Studio Monitor that in September he received from the Revenue Service codes for electrical goods that are subject to the 11th package of EU sanctions against Russia, and a message that they cannot be exported from Georgia.
“A month ago there was a ban on goods using this code, and all goods were returned to Turkey. Export from Georgia is prohibited in all cases, that is, it is not allowed to any country,” Besik Koridze told us.
The Armenian path and “third countries”
The volume of exports from Georgia to Armenia in the first 10 months of 2023 compared to the same period a year earlier increased by 56% and amounted to $657.52 million. In addition, increased growth was recorded in the export of dual-use electrical products. For example, in January – October 2023, compared to the same period in 2022, the export of digital blocks increased by 1280% and amounted to $3.047 million.
After the start of the war in Ukraine, the import of electrical equipment to Armenia from different countries increased. Due to connections with Russian businesses and supplies of equipment to them, some companies operating in Armenia have already come under sanctions. For example, restrictions from the United States affected TAKO LLC, which traded electrical equipment in Armenia.
Tina Khidasheli, the former Minister of Defense of Georgia, and now the founder of the non-governmental organization “Civil Idea”, in a conversation with Studio Monitor, drew attention to the fact that, in addition to Armenia, the so-called list of third countries also included Kazakhstan and Kyrgyzstan, with which Georgia's export figures have increased. This raises a reasonable suspicion that Georgia is being used to evade anti-Russian sanctions.
The volume of exports from Georgia to Kyrgyzstan for 10 months of 2023 compared to the same period a year earlier increased by almost 900% (from $57 million to $564 million). As for Kazakhstan, in January–October 2023, Georgia exported up to $580 million, which is 240% higher than the same period in 2022.
“Look at the growth rate of interest in Kyrgyzstan. It was included by America in the list of countries that are indirectly involved in circumventing sanctions. We have increased trade with Armenia and Kyrgyzstan. The data for Kyrgyzstan is incredible. The Georgian government can say that the final destination is Kyrgyzstan, and then we have no control over anything. Technically it is, but in reality it is not.. At least, after the US published a list of high-risk countries, I think it’s worth at least thinking about what kind of trade Georgia is conducting with countries with which there was no trade before, and what causes this,” said Tina Khidasheli.
What are the Georgian authorities (not) doing?
Studio Monitor contacted the tax service of the Ministry of Finance, which is responsible for monitoring the processes of import and export of sanctioned goods, but did not receive an answer on how companies can trade these products through the territory of Georgia.
After the introduction of international sanctions against Russia, Georgian Prime Minister Irakli Garibashvili stated that Georgia would not join these restrictions.
“Georgia, taking into account our national interests and the interests of our people, is not going to take part in financial and economic sanctions, since this will only cause much greater damage to our country and our population. Accordingly, I, as the head of government, responsible for our country and population, responsible for both domestic and foreign policy, was guided, based on national interests, only by the interests of our country,” said Irakli Garibashvili on February 25, 2022, on the second day after the start of the Russian-Ukrainian war.
However, later the Ministry of Finance of Georgia published a statement noting that Georgia fully complies with international sanctions and actively cooperates with partner countries. “Since the introduction of international sanctions, Georgia has received more than 1,200 customs decisions on the return of sanctioned goods from border checkpoints and customs clearance zones. More than 800 customs decisions were rejected when a person applied verbally/in writing about his intention to export or re-export,” we read in the message.
During the same period, the Tax Service of the Ministry of Finance also published a statement about the export of sanctioned electrical equipment through Georgia. It mentioned that since the introduction of international sanctions, Georgia “fully complies with the established rules and strictly controls the implementation of all customs formalities.”
Deputy Chairman of the Georgian Parliamentary Committee on Defense and Security, opposition representative Teona Akubardia is confident: the government should have held parliamentary debates and made a decision on sanctions, which would have eliminated any suspicion of Georgia’s involvement in evading Western anti-Russian restrictions.
“There are some sanctions that we could impose if we joined. Although parliament determines foreign and domestic policy and the government then implements it, it is not even discussed in parliament. If we say that we represent the entire population in parliament, then in normal countries there would be a discussion. Then there would be a decision on whether we can join economic sanctions. And if we can’t, then how will this affect us from the point of view of foreign policy, given the desire to join the European Union,” said Teona Akubardia.
The Georgian government did not join international sanctions against Russia. And, moreover, it sharply increased the volume of trade with it and economic dependence on the Russian Federation.
“Oil Needle”
In January–June 2023, imports from Russia to Georgia increased by 31% and amounted to $927 million. The import of petroleum products increased the most: for 9 months of 2023 it amounted to $477 million. For comparison: in 2021, Georgia received $135 million worth of Russian oil products, and in 2022 – $620 million.
The head of the Union of Oil Importers, Vakhtang Jobashvili, explains that this is due to the cheapness of oil products from the Russian Federation. According to him, Russia provided a large discount, since Russian oil has been under the EU embargo for more than a year, and Russian oil giants were also subject to sanctions.
“We did not receive the sanctioned product. There are large companies in Russia that are subject to sanctions – Rosneft and others. At the same time, small private companies that were not subject to sanctions entered Georgia.. Businesses will buy where it is cheaper, without regard to politics, because this is the only way they will be able to make a profit. This is a business,” says Vakhtang Jobashvili.
According to him, Russia has always used and continues to use the fuel issue as a political weapon.. And she did the same in the case of Georgia, when in September 2023 the Russian government banned the export of motor gasoline: “It was a political decision. After this resolution, Russia said that if you join the Eurasian Union, there will be no problems.”
But I want to eat…
After the start of the war in Ukraine, Ukrainian food in Georgian supermarkets was almost completely replaced by those produced in the Russian Federation. The head of the Union of Importers of Georgia, Iva Chkhonia, explains that cheaper Russian products have replaced more expensive Ukrainian products.
“The volume of imports has increased, and it is not surprising that it has increased from Russia. Because logistics are cheaper, production is cheaper, etc.. etc.,” says Iva Chkhoniya.
Compared to imports, the pace of exports from Georgia to Russia increased slightly. Most of the 10 largest exporters are wine companies. In 2006, the Russian Federation introduced an embargo on Georgian wine, which created serious problems in this industry for many years.. But over time, the quality, price and promotion of Georgian wines in other countries have increased. After 2012, when the Georgian Dream party came to power, Russia lifted the embargo on Georgian wine. After this, the dependence of Georgian winemakers on the Russian market resumed.
Why is this happening?
Deputy Minister of Economy Gennady Arveladze did not answer Studio Monitor’s question about why Georgia’s economic dependence on Russia is growing and how natural this is against the backdrop of how the West is constantly expanding sanctions against the aggressor country.
According to Tina Khidasheli, although increased dependence on the Russian market has a short-term effect, in the long term it creates risks for the country's security.
“The government’s position has strengthened these ties and increased support for the Russian economy on a scale never seen before.. Security is not measured in dollars. In fact, in the long run, non-compliance with these sanctions will cost us much more than the short-term benefits of importing relatively cheap goods from the Russian market.”
According to the latest study by the NGO Georgian Transparency International, in 2022–2023, Georgia’s economic dependence on the Russian Federation increased, which is “dangerous, since Russia traditionally uses economic relations as a lever of political pressure on independent countries.”