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Gold must not become Russia’s anti-sanction silver bullet

Despite being the most sanctioned country in the world, Russia keeps successfully circumventing these restrictions. Among all of its economic options, gold is helping it to do so.

May 8, 2024 - Lesia Dubenko - Articles and Commentary

Photo: Mitand73 / Shutterstock

Since February 24th 2022, western economies have imposed a wide array of sanctions on the Russian economy. Despite this, they have overall had mixed results.

While it has become much more complex for Moscow to operate in foreign markets, as well as to trade in general due to thousands of sanctions, the country proved to be resilient, with its economy now poised to return to growth in 2024. This is all thanks to Moscow’s cooperation with major authoritarian economies like China, which is becoming increasingly hawkish, prompting the US to issue financial warnings to Beijing.

Other non-western countries are also aiding Moscow, though in a more discrete manner. This is especially true following the G7 countries’ decision to ban imports of Russian gold – a move that cost Moscow approximately 19.1 billion US dollars in exports.

A recent study by the analysis group Sayari delves into Moscow’s clandestine operations in Turkey and the United Arab Emirates (UAE), both of which are likely to purchase Russian gold. It should be remembered that this is Moscow’s second most valuable export after fossil fuels.

It focuses on the joint stock company and commercial bank Lanta Bank (JSC Lanta Bank) and the public joint stock company Vitabank, which have been sanctioned by the US Office of Foreign Assets Control (OFAC) and Ukraine respectively.

For months, Sayari had been examining Russian exports to companies in non-EU markets like Turkey and the UAE, including ILS Global Trading and well-known corporations like the Turkish-based Ahlatci Holding. It is clear that this second group enjoys close cooperation with President Recep Erdoğan when data analysis and patterns are analysed. The report also looked into cargo documents that often include the name of the importer and exporter; a description of goods and its Harmonized System code; and the origin and departure countries. This makes the research especially useful for identifying wider trends in trade activity, as well as the specific entities involved.

The findings are discouraging. They firstly indicate that the connection between Russian banks and their intermediaries remains robust. At the same time, they also show that the US and EU’s foreign currency supply restrictions, which concern the US dollar (and to a lesser extent, the euro), have had a limited impact on Russia’s ability to access foreign currency.

An analysis of Russian trade data shows that in the first quarter of 2023, over 82,000,000 US dollars in American, European and Emirati currency were shipped from companies in Turkey and Dubai to Russia. In exchange, Russia shipped gold worth approximately 725,000,000 dollars to the same companies in Dubai and Turkey.

Between January and May of 2023, Vitabank sent roughly 614 kilogrammes of gold valued at approximately 30.7 million dollars to the Emirati group ILS Global General Trading LLC. This company has, in turn, shipped over 17 million dollars in American and European notes to Vitabank between February and March.

Vitabank also received ten shipments of US banknotes valued at approximately 7.5 million dollars from the UAE-based Auroom Trading LLC, as well as 14.9 million from the Turkey-based “Demas Kuyumculuk Ihr Ith San Ve Tic A.S.”.

Meanwhile, public records show that ILS has been collaborating with Ahlatci Holding, its largest Turkish trading partner for both selling and purchasing items. In the first quarter of 2022, Ahlatci imported 1.1 tons of gold from ILS.

The demand for Russian gold thus remains high, with clients ready to purchase it regardless of origin. This particularly applies to Ahlatci. Some former employees, who preferred to talk on an anonymous basis as part of the study, have shown that the company is open to purchasing Russian gold as long as it does not come directly from Russia but via an intermediary in the UAE.

So, what does all this mean in practical terms?

Firstly, although the sanctions have not managed to cripple Russia’s economy, they have complicated its access to key currencies. This fact alone must not be overlooked as there are many actors out there who claim that the sanctions have no effect on Russia’s economy – which is untrue.

Furthermore, America’s financial threats have seen Turkish-Russian trade significantly cool down, disrupting or slowing some payments for both imported oil and Turkish exports. India, the UAE and China have already experienced similar payment issues.

Secondly, it is clear that Russia is ready to sell its gold in exchange for cash. To identify possible involvement in transactions like these under due diligence, banks would need to examine correspondent banking relationships in jurisdictions likely to be midpoints for Russian access to the US dollar or the euro. They would then need to take appropriate action. They will have to do this unless they want to face severe repercussions, jeopardizing their cooperation with the US and the EU.

Thirdly, and most importantly, while Russia is good at circumventing sanctions, it cannot make the process fully opaque. Despite all its twists and manoeuvres, Sayari still managed to successfully identify patterns that helped pinpoint Russia’s attempts at evading restrictions.

Such research should not be standalone but part of a larger governmental and non-governmental endeavour, as it appears that the cash-for-gold strategy extends well beyond the UAE and Turkey. Accordingly, more countries are likely to be involved in illicit operations that allow Moscow to fund its war machine.

Ultimately, gold like any other commodity must not become Russia’s silver bullet to evade sanctions – especially since we know the companies and individuals enabling this trade.

Lesia Dubenko is a Ukrainian analyst and journalist who has written for the Financial TimesNew Eastern EuropeEuropean Pravda, the Atlantic Council and the Kyiv Post.

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