1. Introduction
1. Restrictive measures or “sanctions”
have proved on multiple occasions to be an effective diplomatic
tool to put pressure on governments and individuals responsible
for breaching international and humanitarian law, violating human
rights and threatening international peace. They are also used to
project a moral stance and convey a political message by countries
willing to distance themselves from the illegal acts of targeted
parties.
2. Sanctions span from banning travel, sports or cultural activities,
to cutting diplomatic ties, freezing assets and imposing sectoral
trade restrictions or generalised embargoes. They can be enforced
unilaterally or under a multilateral framework, and they can be
formulated in a way that targets only specific individuals or entities.
3. Since the launch of its aggression against Ukraine in 2014,
the Russian Federation has been involved in serious violations of
international human rights and humanitarian law in the temporarily
occupied parts of Ukraine's Donetsk, Luhansk, Zaporizhzhia, and
Kherson regions, as well as in the Autonomous Republic of Crimea
and the city of Sevastopol. The Russian Federation’s unprovoked
full-scale military invasion of Ukraine started on 24 February 2022
stands as a stark example of the devastating impact of wars and
conflicts on human lives, regional stability, and trust in global
institutions.
4. In response to these crimes, an increasingly larger group
of States has imposed an unprecedented number of sanctions against
the Russian Federation, contributing to its international isolation
and making it the most sanctioned country globally. The current
sanctions regime against the Russian Federation represents, therefore,
a unique case.
5. Sanctions against the Russian Federation are effective in
reducing the country’s economic, trade and military capacities,
and in contributing to hold the Russian Government and elites accountable
for their internationally illegal acts. Without sanctions, the Russian
Federation would have much larger financial, technological and material
resources to conduct its criminal acts of war of aggression against
Ukraine and its population, infrastructure and environment. The
Russian authorities and their partners are, however, constantly finding
new ways to circumvent sanctions.
6. In order to cement the results achieved so far and tighten
the grip of sanctions around Russian critical economic sectors,
this report proposes the introduction of further measures that can
cover the existing gaps and loopholes and put additional pressure
on the aggressor State Russia.
2. The role of sanctions
2.1. Categories of sanctions
7. The first half of the 20th century
has been characterised by the two World Wars, by far the largest
and deadliest conflicts of human history. In 1945, in the aftermath
of the Second World War, the United Nations (UN) were established,
through the ratification of the UN Charter and with the main purpose
of maintaining international peace and security, by taking “effective
collective measures for the prevention and removal of threats to
the peace”. The UN Charter codifies the major principles of international
relations, from sovereign equality of States to the prohibition
of the use of force in international relations.
8. The European continent had been the epicentre of the two World
Wars. In 1949, echoing the principles at the basis of the UN, the
Council of Europe was created under the premise that “the pursuit
of peace based upon justice and international co-operation is vital
for the preservation of human society and civilisation” and with
the aim of achieving “a greater unity between its members for the
purpose of safeguarding and realising the ideals and principles
which are their common heritage and facilitating their economic
and social progress”.
9. After the conclusion of the Cold War, the first decades of
the 21st century have quickly turned
into a missed chance for international peace and stability. We now
live in an increasingly multipolar world, grappling with serious
security challenges. In different regions, numerous cases of systematic
violations of human rights and freedoms persist, exacerbating social
tensions and fuelling conflicts. Currently, there are over 100 armed conflicts
globally,
undermining fundamental human freedoms
and impeding national economic development as well as international
security and peace.
10. In order to achieve the aims professed by the United Nations
and the Council of Europe, and to ensure global security and respect
for international law, effective mechanisms and instruments are
needed, in particular in instances where a State threatens the sovereignty
of another State, or when it is violating human rights, freedoms,
and democratic principles on a large scale domestically.
11. In this sense, sanctions can serve as a means of holding governments
accountable for their acts. If a government engages in activities
contrary to democratic values or in aggressive actions against its
own citizens or neighbouring States, sanctions act both as a deterrent
and as a coercive measure. Through sanctions, the “senders” (sanctioning
States or international organisations) attempt to modify the behaviour
of the “targets” (sanctioned government authorities and, in some
cases, individuals or non-state actors).
12. Sanctions can cover cultural, diplomatic, economic and military
relations. In particular, they can be categorised into several types
based on their target and scope:
- comprehensive
sanctions aim to restrict all or most relationships with the target
country. They may include trade embargoes, financial restrictions,
as well as limitations on cultural, travel and diplomatic relations;
- sectoral sanctions target specific sectors of a country's
economy, such as finance, energy, or defence. They aim to restrict
or prohibit certain types of trade or transactions within those
sectors;
- personal sanctions are directed at individuals or entities
deemed responsible for specific actions or behaviours. They may
include travel bans, asset freezes, or restrictions on financial
transactions;
- secondary sanctions target third parties, such as individuals,
companies, or countries which engage in certain activities with
the sanctioned entity or country. These sanctions aim to deter others
from doing business with the target country by imposing penalties
or restrictions on them.
13. According to the UN Charter, the UN Security Council might
determine the need to adopt measures not involving the use of armed
force to maintain or restore international peace and security. Article
41 of the Charter provides an indication of the kind of measures
UN member States might need to adopt, such as: “complete or partial
interruption of economic relations and of rail, sea, air, postal,
telegraphic, radio, and other means of communication, and the severance
of diplomatic relations”.
14. The adoption of UN Security Council sanctions during the Cold
War was rather rare, as the permanent members seldom agreed on their
use: only two mandatory sanctions were imposed, on Southern Rhodesia
in 1968 and South Africa in 1977. The adoption rate gradually increased
in the aftermath of the collapse of the Soviet Union, and sanctions
were more frequently used during the nineties. As an example, sanctions
were imposed on Iraq (1990-2003), during the break-up of the former
Yugoslavia (1991-1996), on Haiti (1993-1994), as well as in the
context of intrastate conflicts, in particular targeting some African
countries.
15. Currently there are 14 UN Security Council sanctions regimes
in place, aimed at supporting the political settlement of conflicts,
tackling nuclear proliferation and countering terrorism.
The current polarisation amongst
the permanent members of the UN Security Council makes it extremely
difficult to achieve an agreement on the imposition of new sanctions
and even to manage existing sanctions regimes. The most recent example
of this is the veto imposed on 28 March 2024 by the Russian Federation
on a UN Security Council Resolution which would have extended until
30 April 2025 the mandate of the Panel of Experts assisting the
Sanctions Committee established pursuant to Resolution 1718 (2006)
on North Korea.
16. Also because of the deadlock within the UN Security Council,
States have increasingly adopted sanctions unilaterally, at individual
level or in co-ordination with other like-minded countries, to pursue
foreign policy objectives and in particular as a means to protect
human rights, democracy and international law against a government
violating or threatening to violate them. In some other instances
however, unilateral sanctions are also enforced in addition to those
mandated by the UN Security Council, mostly to reinforce them –
this is a common practice of the European Union or the United States,
and an example was the case of multiple sanctions packages imposed
on Iran on its nuclear proliferation programme.
17. Unilateral sanctions are currently being adopted outside the
framework of the UN Security Council in a number of cases. As an
example, the United States have been imposing a comprehensive economic
embargo on Cuba since 1962. Among other cases, it is worth to mention
the sanctions regime adopted against Myanmar by the European Union,
the United States, the United Kingdom and Australia, in response
to the military coup carried out in 2021 and the severe violations
of human rights in the country. More recently, Türkiye decided to suspend
trade with Israel over the conflict in the Gaza Strip; the United
States, on the other hand, threatened to suspend the provision of
weapons to Israel, should it decide to proceed with the invasion
of the city of Rafah.
18. According to the different possible scenarios depicted above,
sanctions can therefore serve as a:
- deterrent against undesirable actions, by signalling to
targeted States, individuals or non-state actors that certain behaviours,
such as aggressions, terrorism or human rights abuses, will result
in diplomatic, financial or economic consequences;
- coercive tool, in order to put pressure on States, individuals
or non-state actors already engaging in such behaviours, and make
it harder for them to keep doing so;
- diplomatic leverage to encourage negotiation, mediation,
or compliance with international demands;
- mean of pressure for requiring authoritarian regimes to
initiate democratic reforms.
2.2. The effectiveness of sanctions
19. Empirical research has shown
that sanctions can cause substantial harm to target countries, in
particular when they aim at choking trade and financial transactions
and thus manage to strongly impact their gross domestic product.
The overall effectiveness of sanctions in improving the protection
of human rights and in encouraging democratic change in target countries
is however still disputed by academic research.
20. Based on the Global Sanctions Database,
which covers a total of 1 325 sanction
cases starting from 1950, a study published in 2020 came to the
following main conclusions: “(i) the use of sanctions has risen
over time; (ii) European countries are the most frequent users and
African countries the most frequent targets, with sanctions being
mostly non-reciprocal; (iii) sanctions are becoming more diverse,
with the share of trade sanctions declining and the share of financial
and travel sanctions rising; (iv) the main objectives of sanctions are
increasingly related to democracy and/or human rights and less to
classical questions of international diplomacy; (v) the success
rate of sanctions had been increasing until 1995 and has fallen
since then; on average the success rate is about 30%”.
21. An additional consideration is that sanctions might produce
adverse consequences, both on the sender countries and the target
country’s population.
For this
reason, targeted “smart” sanctions are often preferred, as they
put most of the pressure on specific individuals, entities and non-state
actors responsible for international law or human rights violations.
In any case, sanctions of all kinds normally represent a much less costly
alternative to direct military confrontation, and in this sense
they encounter lower resistance both at national and international
levels.
22. On the other hand, the enforcement of sanctions also exquisitely
represents a moral stance and a political message on the side of
sender countries. A sender country can decide to limit and restrain
its relationship with a target country or individuals by imposing
sanctions in order to clearly distance itself from a deplorable
behaviour, signalling that it does not want to provide means to
those operating in violation of recognised norms of international
law or human rights protection. This is the case, for example, of
sanctions recently imposed by the European Union, the United Kingdom,
Canada and the United States on Israeli settlers on the West Bank
for acts of violence and incitement against Palestinians. They consist
of freezing of their assets and restricting their ability to travel
abroad.
23. The effectiveness of sanctions in some instances might not
be immediately evident, as it might take time (possibly several
years) before change actually happens. In these cases, economic
pressure imposed on target countries entails a progressive erosion
by attrition of their financial resources, and an increased instability
in their macro-economic fundamentals. As the impact is felt in the
long-run, sender countries need a strong resolve in their commitment
to achieve their objectives.
24. Notwithstanding all of the above, sanctions have factually
proven to be effective in several international issues, in particular
in preventing conflicts, reducing geopolitical tensions, and encouraging
regime changes. As an example, in 1921 the threat of economic sanctions
from the League of Nations prevented Yugoslavia from invading Albania;
in 1925, a conflict between Bulgaria and Greece was avoided in a
similar fashion.
Sanctions also contributed to democratic
reforms and the overthrow of the apartheid regime in South Africa,
to the introduction of multi-party democracy in Malawi, and to the
abandonment of Taiwan's plans to develop nuclear weapons.
25. The sanctions imposed on the USSR in the 1980s had a profound
impact on its economy, exacerbating the crisis within the State
system, isolating the Soviet Union from technologically advanced
countries, and ultimately contributing to its collapse. Another
successful example is represented by the sanctions leading to the
nuclear deal with Iran: while the agreement is not in place any
longer, it was because of the sanctions regime that Iran formally
agreed that its nuclear programme would not be used to develop nuclear
weapons.
26. Sanctions are not a panacea, and it would be naïve to expect
that they can be a game-changer alone. They can however play a key
role when they are combined with other tools such as early warning
mechanisms, diplomatic negotiations, and in the worst and most unfortunate
scenarios, military intervention. They entail a powerful moral,
symbolic and political significance, which is unrelated to their
immediate effectiveness. They also represent a more viable and economic
alternative to military intervention. Policymakers need to take
into account all these aspects whenever they consider the adoption
of sanctions in combination with or in alternative to other foreign
policy tools.
3. The consequences of the Russian Federation’s
unprovoked full-scale war of aggression against Ukraine
27. Since launching its aggression
against Ukraine in 2014, the Russian Federation has been responsible for
serious violations of international human rights and humanitarian
law in the temporarily occupied parts of Ukraine's Donetsk, Luhansk,
Zaporizhzhia, and Kherson regions, as well as in the Autonomous
Republic of Crimea and the city of Sevastopol. It has enforced demographic
changes, suppressed religious communities, militarised the Crimean
Peninsula, and imposed restrictions on education and freedom of
expression and assembly, leading to arrests and political persecution,
particularly targeting Ukrainians and Crimean Tatars.
28. The Russian Federation’s illegal, unprovoked and unjustified
full-scale military invasion of Ukraine started on 24 February of
2022 in continuation of the Russian Federation’s war of aggression
against Ukraine that has been ongoing since 19 February of 2014,
stands as a stark example of the devastating impact of wars and
conflicts on human lives, regional stability, and trust in global
institutions. Thousands have died, with shelling destroying homes,
schools, hospitals, causing flooding and disrupting water supplies
to irrigation systems. These actions constitute a direct violation
of Articles 3, 18, 25, 26 of the Universal Declaration of Human
Rights, as well as Article 2 of the European Convention on Human
Rights (ETS No. 5).
29. In particular, the UN Human Rights Monitoring Mission in Ukraine
(HRMMU) has documented at least 31 366 civilian casualties in Ukraine,
with 10 810 fatalities and 20 556 injuries since 24 February 2022.
The vast majority of these casualties (91%) were caused by explosive
weapons with wide area effects, including shelling from artillery,
tanks and multiple launch rocket systems (MLRS), cruise and ballistic
missiles (air, sea and land-based), and air strikes, including loitering
munitions and other unmanned aerial vehicles (UAVs). Official statistics
do not account for civilian casualties in the temporarily occupied
territories. In particular, preliminary data indicate that more
than 22 000 civilians were killed in Mariupol. Furthermore, HRMMU recorded
that 1 109 educational facilities and 482 medical facilities were
either destroyed or damaged, along with critical infrastructure.
The total damage to
the infrastructure in Ukraine estimated by the Kyiv School of Economics
as of January 2024 was reaching up to US$ 155 billion.
In particular, the amount of destruction suffered
by the city of Mariupol alone between 24 February and 20 May 2024,
is estimated at approximately US$14.5 billion (according to the
Mariupol City Council), including the damage resulting from the
destruction of two metallurgical plants, estimated by the World
Bank at US$4.2 billion.
30. According to the special report of the Ukrainian Parliament
Commissioner for Human Rights on the observance of the rights of
persons affected by the Russian Federation’s war of aggression against
Ukraine, at least 19 500 Ukrainian children have been illegally
abducted and deported to the Russian Federation. However, the actual
number might surpass several hundreds of thousands of Ukrainian
children taken by the Russian authorities since the commencement
by the Russian Federation of the unprovoked full-scale military invasion
against Ukraine.
Additionally, over 2 090 children
are reported missing, 535 have been killed, 1 257 have sustained
injuries, and 13 have been victims of sexual violence. On 17 March
2023, the International Criminal Court (ICC) issued arrest warrants
for the President of the Russian Federation, Vladimir Putin, and
for the Commissioner for Children’s Rights, Maria Alekseyevna Lvova-Belova,
both “allegedly responsible for the war crime of unlawful deportation
of population (children) and that of unlawful transfer of population
(children) from occupied areas of Ukraine to the Russian Federation”.
The Office for Democratic Institutions and Human Rights of the Organization
for Security and Co-operation in Europe (OSCE/ODIHR) urged the Russian Federation
to immediately cease the practices of forcible transfer or deportation
of children from Ukraine to the temporarily occupied territories
and the Russian Federation.
31. Furthermore, residents of the temporarily occupied territories
of Ukraine are being forcibly mobilised into the Russian Armed Forces.
Since April 2015, approximately 35 000 individuals from temporarily
occupied Crimea and the city of Sevastopol have been illegally conscripted.
Moreover, starting from February 2022, up to 90 000 residents from
temporarily occupied parts of Ukraine’s Donetsk, Luhansk, Zaporizhzhia,
and Kherson regions have been coercively enlisted into units of
the 1st and 2nd Army Corps within the Southern Military District
of the Russian Armed Forces.
32. The Russian armed forces have been consistently responsible
for organised and extensive plundering of private, public and other
properties across Ukraine, especially targeting agricultural products
and metal products. Factories are being looted, and equipment is
being dismantled for scrap metal. This looted property is then transported
to the Russian Federation through routes passing via temporarily
occupied Crimea and Belarus. The act of pillage is explicitly prohibited
under customary international humanitarian law, as stipulated in
Articles 28 and 47 of the Regulations Regarding the Laws and Customs
of War on Land, which is an annex to the Convention (IV) respecting
the Laws and Customs of War on Land of 1907 (Hague Regulations).
This Convention is still in force
and binding upon the Russian Federation. Recognised as a war crime
since the First World War, the prohibition of looting has also been
expressly outlined in legal documents such as the Nuremberg Tribunal
Statute and is currently delineated as a war crime under Article
8(2)(b)(xvi) of the Rome Statute of the ICC.
33. In 2022 and 2023, Ukrainian law enforcement agencies recorded
Russian-flagged vessels transporting grain stolen from the temporarily
occupied territories, specifically from the Kherson and Zaporizhzhia
regions to third countries through Crimean seaports closed since
2014. The Russian occupying administration forged shipping documents
in order to “clean up” and legitimise the stolen grain being transported.
In addition, according to the HRRMU, since 11 July 2023, dozens
of attacks damaged or destroyed facilities related to grain production
and export in territory under the control of Ukraine, including
port facilities, grain silos and vehicles for transporting grain.
Additionally, metal products and surviving equipment were stolen
from the metallurgical enterprises in the city of Mariupol, as well
as from the territory of its sea port, and were transported out
through the Mariupol sea trade port.
34. The Russian army is systematically stealing objects of Ukraine's
cultural heritage. Since 24 February 2022, at least 245 such cases
have been officially recorded.
The stolen cultural property is
transported across the territory of the Russian Federation, becoming
part of exhibitions and private collections of Russian individuals,
the subject of research by various institutions, and is used for
Russian propaganda purposes, in particular to fuel the “Russian
world” concept by demonstrating the so-called “rich Russian culture”.
In addition, since the first days of Russia’s war of aggression
against Ukraine, Russian troops have cynically damaged or destroyed
at least 1 062 sites of Ukraine's cultural heritage. Of these, 307
are architectural monuments, 316 are architectural and urban planning
monuments, 226 are historical monuments, 21 are monumental art monuments,
19 are urban planning and monumental art monuments, and 56 are archaeological
monuments. This is a direct violation of Article 56 of the Hague
Regulations.
35. The scale of Russian strikes is not diminishing. As reported
by the Institute for the Study of War, during the night of 21-22
March 2024, the Russian forces conducted the largest combined drone
and missile attack against Ukrainian energy infrastructure since
the beginning of the full-scale invasion of Ukraine, launching 151 drones
and missiles targeting 136 energy facilities in Zaporizhia, Khmelnytskyi,
Odesa, Dnipropetrovsk, Poltava, Mykolaiv, Vinnytsia, Lviv, and Ivano-Frankivsk
oblasts. On 22 March, Russian missile strikes destroyed all power
units and auxiliary equipment at the Zmiivska Thermal Power Plant
(TPP) in Kharkiv Oblast and critically damaged HPP-1 and HPP-2 of
the Dnipro Hydroelectric Power Plant (HPP) in Zaporizhzhia. Targeting
energy infrastructure has a significant impact on Ukrainian population,
and aims at degrading Ukrainian defence industrial capacity.
4. The current sanctions regime against
the Russian Federation
36. In response to the Russian
Federation’s unprovoked full-scale military invasion of Ukraine,
both individual States and the European Union have imposed an unprecedented
number and range of sanctions against the aggressor State Russian
Federation, contributing to its international isolation: approximately 14 000
distinct sanctions are now targeting Russian individuals and legal
entities, making the Russian Federation as the most sanctioned country
globally, and significantly limiting it militarily and economically.
37. The main rationale justifying the extent of the current sanctions
regime against the Russian Federation is to hold the government
and the responsible elites accountable for the full-scale war of
aggression that it is waging against Ukraine and the uncountable
violations of human rights that this entails. Sanctions contribute to
counter the Russian Federation’s military effort in the battlefield,
in particular by impeding the use of its financial assets held abroad,
by minimising inflows related to oil and other exports, and by reducing
industrial access to technology and dual-use goods which are vital
for the production of weapons and military materiel.
38. On 23 February 2024, the European Union adopted its 13th package
of sanctions: these packages target individuals and entities that
are enabling the Russian Federation’s war of aggression against
Ukraine effort, include individuals and entities from other countries,
such as Belarus, Iran and North Korea.
On the same date, the United States
also announced over 500 new sanctions against individuals and entities
based in the Russian Federation as well as in other countries, in
relation to the Russian Federation’s war of aggression against Ukraine
as well as violation of human rights, in particular the death of
Russian opposition politician Alexei Navalny in detention.
39. The European Union adopted on 22 March 2024 additional restrictive
measures against 33 persons and two entities linked to Navalny’s
sudden death.
On 1 May 2024, the United States
further sanctioned 280 persons and entities engaged in the development
of the Russian Federation’s future energy, metals, and mining production
and export capacity; sanctions evasion and circumvention; and furthering
the Russian Federation’s ability to wage its war against Ukraine.
In particular, the United States State Department is accusing the
Russian Federation of using chemical weapons (including chloropicrin
and riot control agents) against Ukrainian forces, in violation
of the Chemical Weapons Convention, to which the Russian Federation is
a party.
40. Canada, Australia, Japan and other countries have also joined
the “sanctions coalition”, adopting similar measures since the beginning
of the unprovoked full-scale military aggression of the Russian
Federation against Ukraine.
5. Impact of the sanctions regime against
the Russian Federation
41. Sanctions have dealt a significant
blow to the Russian economy and to Moscow's capacity to fund its
war of aggression against Ukraine, as described by several experts
during the hearings within the Committee on Political Affairs and
Democracy held on 12 December 2023 and on 18 April 2024, as well
as during the side-event co-organised on 23 January 2024 by the
Ukrainian delegation to the Parliamentary Assembly and the Kyiv
School of Economics Institute (KSE). This was also stressed by the
International Special Envoy for the Implementation of EU Sanctions,
David O’Sullivan, during the online meeting I had with him on 24
May 2024.
42. Without sanctions, the Russian Federation would have access
to a much larger amount of financial resources as well as to a bigger
pool of crucial military technologies, and would therefore have
been in a position to increase its military expenditures and ultimately
cause even more damage to the Ukrainian population, infrastructure
and environment. In this sense, the effectiveness of sanctions against
the Russian Federation cannot be disputed. Their role is absolutely
essential in the achievement of a comprehensive, just and lasting
peace for Ukraine.
43. One consideration made by the experts consulted during the
above-mentioned exchanges is related to the misinformation, spread
by Russian propaganda, concerning the costs of sanctions on sender
countries. It is important to stress that these costs are massively
exaggerated or even linked to sanctions in a disingenuous way. An
example of this is the increase in energy prices in Europe in 2022:
while no meaningful sanctions on Russian energy exports were in
place back then, this was rather the result of the Russian Federation’s
attempt to weaponise gas flows. Sanctions are actually having a
strong impact on the Russian Federation, and they should be reinforced
with additional measures in order to tighten the grip around Russian
economy and financial stability.
44. In particular, the Russian Federation’s external balance in
2023 sharply deteriorated, with a 63% drop in trade surplus and
a 79% drop in current account surplus compared with 2022. The lower
inflows of foreign currency have led to an important devaluation
of the ruble, which has lost around 40% of its value against the euro
and the US dollar since the fall of 2022. This has augmented inflationary
pressures and forced the Central Bank of the Russian Federation
(CBR) to increase interest rates and reintroduce capital controls.
These measures will
have an impact on Russian economy also in the longer term.
45. The Russian Federation heavily depends on the National Wealth
Fund (NWF) to sustain its budgetary requirements. Since the commencement
of its war of aggression against Ukraine, the Russian Federation
has allocated a minimum of 4.7 trillion rubles (approximately US$55
billion) of the NFW’s liquid assets to bolster the budget and aid
struggling enterprises. Total assets of the NWF stood at 12.3 trillion
rubles (US$133.4 billion, 6,8% of GDP) in February 2024. Only 41%
of the assets are now liquid, posing challenges for their immediate
repurposing to support the budget. While euro assets fell to zero
in December 2023, the liquid portion is now composed only by yuan-denominated
assets and gold: budgetary funding through the NWF will become more
difficult, as these are more complicated to use at scale.
46. Before the unprovoked full-scale military invasion of Ukraine,
Russia held US$634 billion in international reserves, part of what
is described as “Fortress Russia”. Thanks to the sanctions imposed
on the CBR and the NWF, approximately US$313 billion of these reserves
are currently immobilised. This leaves the Russian Federation with
access to around US$153 billion in monetary gold and roughly US$118
billion in foreign exchange (primarily in yuan). At the same time,
Russian banks and corporates were still able to acquire US$187 billion
in assets abroad: this aspect should be monitored and taken in consideration
in the design of future measures.
47. Simultaneously, the fiscal situation seems to have stabilised
in recent months due to the growth of oil and gas revenues, which
in January-February 2024 were 71% higher compared to the same period
in 2023, and because of the weakening of the ruble. On the other
hand, while budgetary deficit in January-February 2024 was smaller
compared to the previous year, expenditures have increased sharply
because of Russia’s war of aggression against Ukraine. The 2024
budget of the Russian Federation allocates 10.775 trillion roubles to
'national defence', marking a 70% increase from the 2023 budget
of 6,8 trillion roubles and tripling the pre-war against Ukraine
year 2021 expenditure. A third of these funds are designated for
the upkeep of the army and defence industry. In total, nearly 40%
of the budget will be devoted to military expenditures. Additionally, funding
for information policy and regime propaganda will continue at a
record level of 121.3 billion roubles.
48. In order to keep the deficit contained, Russian authorities
introduced a windfall tax on the excess profits of companies in
August 2023,
and might need to
increase taxes even further.
To this respect, it is
important to recall that Russia lost US$113 billion related to oil
exports because of the sanctions, an amount that would have been
certainly used by the Russian aggressor to fund its growing military
costs.
49. Sanctions have significantly limited the Russia's ability
to manufacture UAVs, tanks, cruise missiles, and repair military
equipment due to a shortage of foreign machines (such as computer
numerical control ones), components and semiconductors. They have
also led to the withdrawal of international companies from the Russian
market.
50. Uralvagonzavod, the primary producer of Russian tanks, has
halted production due to component shortages. Similarly affected,
the Chelyabinsk Tractor Plant, specialising in machinery repairs,
ceased its operations. Certain divisions within the JSC Kalashnikov
Concern have also halted the production of specific civilian products.
An indicative example occurred on 18 October 2022, when JSC Vostochnaya
Verf filed for bankruptcy. The inability to manufacture sea tankers
and missile ships, coupled with the challenge of repairing them
due to the lack of foreign components – unavailable in both the
Russian and Asian markets – led to this outcome. Additionally, the
shortage of semi-automatic weapons has resulted in the Russian Federation resorting
to more economical but outdated and less reliable ammunition.
51. Nevertheless, between 11 September 2022 and 21 March 2024,
Russia conducted 1 309 missile, artillery, and kamikaze UAV attacks
on infrastructure and civilian targets in Ukraine. This includes
the deployment of Iranian drones, namely the Shahed-136/131. The
Assembly should urge the international community to enhance efforts
to monitor and control the transfer of cutting-edge technologies
to the Russian Federation. It is important to prevent the dissemination
of advanced technologies to the Russian Federation and other authoritarian
regimes that pose a threat to democratic nations. Every possible
scheme that the Russian Federation employs to circumvent sanctions
and access the latest technologies must be identified and countered.
6. How the Russian Federation is circumventing
sanctions
52. An essential challenge in the
effective implementation of sanctions against the aggressor State
Russian Federation lies in curtailing the avenues for circumventing
these sanctions. A considerable volume of goods and components has
been routed to Russia via intermediary third countries. The Russian
Federation is endeavouring to evade sanctions by utilising routes
through China, India, Taiwan and the United Arab Emirates, as well
as Kazakhstan, Kyrgyzstan and certain Council of Europe member States,
such as Armenia, Azerbaijan, Georgia, Serbia and Türkiye.
53. In particular, these countries have become a backdoor trade
route of Western technology and dual-use goods towards the Russian
Federation, ultimately facilitating the circumvention of sanctions,
probably with the implicit approval of Western producers. Some of
these countries are also facilitating the re-export of Russian products
towards third countries.
54. Furthermore, Russian authorities in 2022 authorised a practice
known as “parallel imports” of goods, allowing the import of items
without the consent of the original manufacturer. This practice
was previously regarded as smuggling under Russian law. The Russian
Government however defined a list of goods for which parallel imports
are now allowed, including both critical military equipment and
components, as well as consumer goods.
55. One of the most important measures adopted to target the Russian
Federation’s oil revenues was the imposition, at the end of 2022,
of a price cap equal to US$60/barrel. The rationale was to require
the Russian Federation to accept reduced revenues in exchange for
access to the shipping services offered by the sender countries,
also considering that 80% of the Russian Federation’s seaborne oil
must pass through European territorial waters. The aim was to reduce
Russian oil revenues while at the same time preventing shortages
of oil supply on the global markets.
56. As months went by, the Russian authorities increasingly managed
to identify different channels to circumvent the price cap sanction.
In particular, Russian exporters are using fake “price attestations”
under-reporting the real value of their cargos to sender countries’
shipping services, and have assembled a “shadow fleet” composed
by 300 to 600 tankers, which are not relying on services provided
by sender countries.
57. According to the KSE, in October 2023 more than 99% of seaborne
exports of Russian crude oil appeared to have been sold above the
price cap.
The use of the
shadow fleet also represents a substantial environmental risk, as
it is largely composed by very old and poorly maintained tankers,
covered by inadequate insurance policies.
58. Sender countries are starting to adopt measures to reduce
the use of the shadow fleet: in recent months, the United States
Treasury Department has listed 41 vessels as assets of sanctioned
entities, and out of these, only 5 tankers are completing pre-sanctions
voyages. This is an encouraging sign, demonstrating that the shadow
fleet can and should be targeted.
As a response, the
Russian state-owned oil tanker company Sovcomflot has recently renamed
and reflagged from Russia to Gabon four of its tankers, in an attempt
to distance them from listings on sanctions databases.
7. Further measures to deter and counter
sanctions circumvention
59. Resolution 2506 (2023) of the
Assembly already contained a comprehensive series of recommendations for
member States, observer States and the European Union to address
sanctions avoidance, and encouraged further reflection on the issue
of sanctions against the Russian Federation.
These recommendations are still valid,
and should be considered in the adoption of future policies and
legislation related to sanctions avoidance.
60. The European Parliament resolution of 9 November 2023 on the
effectiveness of the EU sanctions on Russia (2023/2905(RSP)) also
called on the European Union and its member States to undertake
a number of different measures aimed at countering sanctions circumvention
and strengthening compliance; among these, it requested to “reinforce
and centralise, at EU level, the oversight of sanctions implementation
and to develop a sanctions circumvention prevention and monitoring
mechanism”. It is important to stress that the European Commission
monitors that all EU member States implement and enforce EU sanctions,
but the effective oversight on sanctions implementation relies on
over 160 national competent authorities (NCAs) in member States,
with widely different national sanctions implementation systems.
61. Furthermore, the experts consulted during the last months
in the framework of the preparation of this report have suggested
a series of actions that countries should undertake in order to
strengthen the sanctions regime and reduce to a minimum the capacity
of the Russian Federation to circumvent it. The main proposals are
summarised here below.
62. Compliance with the oil price cap needs to be strengthened.
The Russian shadow fleet can be targeted by expanding the number
of shadow tankers listed under sanctions and enforcing the existing
mandatory oil spill insurance requirements: EU coastal countries
should leverage their geographical “choke points” addressing tankers
passing through their territorial waters, including by limiting
or impeding access to their ports, and barring shadow vessels from
receiving services or financial assistance. In particular, a ban
on the passage (entry/exit) of tankers transporting Russian oil
through the sea straits controlled by Denmark and Türkiye, is recommended.
Establishing a whitelist of brokers authorised to provide information
regarding transactions under the price cap (for example, attestations)
as well as stepping
up investigations and penalties can also alter the risk calculations
made by trading companies. Furthermore, the price cap should be lowered
further, to deprive the Russian Federation of critical foreign currency
inflows.
63. Other critical sectors of the Russian Federation need to be
targeted. The price cap affects only oil, while Russian liquefied
natural gas (LNG) is still making its way to the European market,
representing around 15% of the total supply.
Diversifying European energy supplies
and reaching energy independence from Russian oil and gas represent
a strategic imperative. To this purpose, in the medium term, purchases
of Russian LNG and pipeline gas should be phased out. In addition,
oil and gas-related services for production and exports provided
by foreign companies should also be prohibited, in order to push
up Russian costs for oil production.
Furthermore,
a ban on imports from the Russian Federation should be introduced,
particularly targeting products from the agricultural (grains),
metallurgical, and nuclear industries, in order to further reduce
foreign currency inflows. Financial institutions should be included
in the sanctions packages, in particular by banning all Russian
banks from the Society for Worldwide Interbank Financial Telecommunications
(SWIFT) international payment messaging system. Finally, banks should
be urged to cease operations in the Russian Federation, to mitigate
excessive profits that result in substantial tax contributions to
the Russian budget.
64. Export controls to the Russian Federation must be expanded,
simplified and aligned among countries. Producers from sender countries
were responsible for 44% of Russian battlefield goods imports in
January-October 2023. In order to tackle this, a mechanism similar
to the Coordinating Committee for Multilateral Export Controls (CoCom
– created by Western countries during the Cold War in order to co-ordinate
their national controls over technology exports to the Soviet Union
and other communist regimes) should be reestablished.
Furthermore, exemptions
and derogations to the restrictive measures should be limited and
made publicly available, and criminal liability for sanctions violations
should be introduced, especially for what concerns the export of
battlefield goods, dual-use goods, microchips and cutting-edge technology.
More robust tracking and verification systems should be implemented,
to prevent sanctioned goods and materials from entering global markets
through indirect channels.
65. The private sector should be involved, and corporate responsibility
should be bolstered. On the one hand, clearer guidance to the private
sector on how the sanctions regime functions should be provided;
on the other hand, compliance throughout the supply chain should
be ensured, by conducting regular audits, strengthening external
investigations, and encouraging internal “due diligence” investigations.
The imposition of harder fines can function as a deterrent, if for
a company the risk and ultimately the cost of being caught circumventing
the sanctions regime become higher than the potential profits that
it can gain by doing so. In addition, a register of companies and
entities involved in sanctions circumvention could be created and
made public.
66. Secondary sanctions need to be enlarged. Third countries facilitating
or engaging in exchanges with the Russian Federation must be sanctioned:
exports to these countries should be restricted and targeted with additional
secondary sanctions. The sender countries are already trying to
adopt these measures, with some results: for example, banks in Türkiye
and China are now refusing to accept Russian payments, leading to mass
freezing or cancellation of transactions. This has already been
reflected in the statistics of transactions with the Turkish lira.
The volume of trading in this currency on the Moscow Exchange in
January 2024 was RUB 13,9 billion, which is almost four times less
than in December 2023. The amount of RMB (Chinese currency yuan)
held by Russian banks abroad fell to a 1,5-year low. As of 1 January
2024, banks held RMB balances of US$6,8 billion in correspondent
accounts abroad. In December, RMB balances on correspondent accounts held
by banks outside the Russian Federation decreased by a quarter (by
25,7%, or US$2,3 billion). Additionally, on 2 April Kyrgyzstan’s
national payment system Elkart announced that it would stop processing transactions
using the Russian “Mir” payment system to prevent secondary sanctions.
67. Legal options to confiscate frozen Russian assets and use
them to rebuild Ukraine should be explored. Resolution 2539 (2024)
adopted on 16 April 2024 by the Assembly already provided an extensive
analysis of this issue.
Member States should ensure that
they properly follow-up on the recommendations included therein,
especially for what concerns the establishment of an international
compensation mechanism under the auspices of the Council of Europe
to comprehensively address the damage incurred by natural and legal persons
affected, including the State of Ukraine, due to the unlawful actions
of the Russian Federation with its unprovoked full-scale military
invasion of Ukraine. They should also ensure that the Russian frozen
assets they hold are transferred to this mechanism and made available
for the recovery and reconstruction of Ukraine. The international
compensation mechanism should be primarily aimed at compensating
for the damage caused to citizens, including those who have been
forced to move from the temporarily occupied territories.
68. Personal sanctions should be expanded, in order to include
all individuals providing active support to the Russian Federation’s
war against Ukraine and to the Russian regime, as well as the entities
affiliated to them, in order to hold them accountable for their
actions. Further thought should be given to the possible mechanisms that
would allow an enlargement of the list of targeted individuals in
order to include their family members, without violating international
law and human rights provisions.
69. Violation and circumvention of sanctions should be criminalised.
An important step in this direction was already taken by the European
Union, which on 29 April 2024 published in its Official Journal
a Directive on the definition of criminal offences and penalties
for the violation of Union restrictive measures.
The Directive aims at establishing
minimum and similar rules among member States, which will have 12
months to incorporate its provisions in their national legislation.
The Directive defines what conducts member States will be required
to consider as criminal offences committed intentionally or with
serious negligence and in violation of a prohibition constituting
an EU restrictive measure. It also provides indications on the kind
of penalties for natural and legal persons related to the different
offences. EU member States should ensure that they expedite the
incorporation of these provisions into their national legislation,
and non-EU member States should make efforts to align to them as
much as possible.
70. Multilateral co-operation among countries needs to be improved.
This concerns in particular the harmonisation of different legislations,
lists of controlled goods, as well as lists of targeted persons
and entities; the exchange of critical information; the establishment
of shared monitoring and tracking mechanisms; and the conduct of
joint inspections and investigations. Furthermore, it will be crucial
to enlarge the number of sender countries. Resolution 2506 (2023)
of the Assembly already called on “countries aspiring to join the
European Union, including Council of Europe member States, to ensure
strict alignment with decisions taken under the European Union Common
Foreign and Security Policy”. The European Union could establish
a centralised authority to harmonise the enforcement of sanctions
among its member States and to co-ordinate their action with non-EU
States.
71. The capacities and resources of NCAs must be reinforced. At
national level, the NCAs responsible for enforcing and monitoring
sanctions should be strengthened in terms of human, financial and
technical resources, and their work should be streamlined, creating
unified enforcement structures. To this purpose, more initiatives
like the one currently being implemented by the Council of Europe
through its Economic Crime and Cooperation Division (mentioned below)
should be encouraged and supported with the necessary financial means.
8. The work of the Council of Europe
on sanctions
72. The Council of Europe works
on sanctions under different perspectives and through different mechanisms.
In particular, the Committee of Experts on the Evaluation of Anti-Money
Laundering Measures and the Financing of Terrorism (MONEYVAL) evaluates
its members against the internationally-applicable standards elaborated
by the Financial Action Task Force (FATF). The FATF standards require
countries to implement several UN Security Council Resolutions concerning
the establishment of mechanisms enabling the application of asset-freezing
measures with regard to individuals associated with terrorism or
proliferation or financing thereof. MONEYVAL therefore monitors
the implementation of the FATF recommendations, and follows the
relevant legislative measures adopted by the European Union and
the relevant jurisprudence of the Court of Justice of the European
Union and of the European Court of Human Rights.
73. In a similar fashion, the Committee of Legal Advisers on Public
International Law (CAHDI) includes in the agenda of all its meetings
a specific item entitled “National implementation measures of UN
sanctions and respect for human rights”. The Committee members discuss
recent developments concerning the implementation of sanctions at
each meeting, in particular for what concerns relevant national
case-law and legislation in their respective national or regional
systems. It also holds and regularly updates a public database on
the “Implementation of UN sanctions and respect for human rights”,
which contains details of national practices regarding the implementation
of sanctions.
74. The Economic Crime and Cooperation Division is tackling the
issue of sanctions enforcement through technical assistance projects,
co-funded by the European Union. The first initiative was completed
in 2023 and produced four studies whose findings shall assist the
NCAs of EU member States in further improving their work in order
to ensure a better implementation of the EU sanctions’ regime against
the Russian Federation.
The second initiative, currently
ongoing, aims at enhancing the capacities of the NCAs to identify
directly or indirectly designated legal persons or entities, and
to access and exchange information at national and international
levels and with business operators.
9. Conclusions
75. The positive impact of sanctions
in protecting human rights, averting international conflicts or encouraging
democratisation and regime change has been proved in a number of
cases. The unprecedented number and range of sanctions against the
Russian Federation, in response to its full-scale, unprovoked, unjustified
and illegal war of aggression against Ukraine, have reduced Russian
financial and military capacities, and therefore substantially limited
the impact of its illegal acts against Ukrainian people, infrastructure
and environment, which would otherwise be much larger.
76. The Council of Europe and its member States have demonstrated
that they stand united with Ukraine against Russia’s war of aggression
against Ukraine. Their resolve has been crucial to identify mechanisms
to hold the Russian authorities, elites and their accomplices accountable
for their internationally illegal acts, in particular with the establishment
of the Register of Damage caused by the Aggression of the Russian Federation
against Ukraine.
77. This commitment needs to continue: the current sanctions regime,
although effective, still presents gaps, loopholes and inconsistencies
that the targeted authorities, companies and individuals continue
to exploit to their advantage, in order to circumvent the sanctions
adopted against them.
78. Council of Europe member and non-member States which oppose
the war of aggression against Ukraine need to co-ordinate in the
adoption of further measures that can close these loopholes and
contribute to achieving a comprehensive, just and lasting peace
for Ukraine, along the terms of the President Zelenskyy’s Peace
Formula.