US targets BRICS with secondary sanctions

On December 11, the ambassadors of the EU member states reached a consensus on the 15th package of anti-Russian sanctions. Alongside Russian entities, the sanctions list encompasses numerous companies from Serbia, Iran, the UAE, and China, which, according to the document, "indirectly contribute to Russia's advancement in military and technological capabilities by circumventing export restrictions." These are known as secondary sanctions. These measures had the potential to exert significant pressure on Russian partners and could have potentially impacted the domestic economy. However, this did not occur, and it is unlikely to occur in the future. As of mid-December, secondary sanctions were in effect against only 744 companies out of tens of thousands of counterparties of Russian companies. An investigation by "Expert" sought to understand the reasons behind this.
Legal basis for illegal sanctions
Strictly speaking, in the jurisprudence of the USA, the EU, Great Britain, and partly Japan, there is no such concept as "secondary sanctions". "There is no doubt that the restrictions imposed on Russia and its trade partners are illegal. These restrictions are in violation of WTO norms, the UN Charter, and the general right to development (a legal term), as asserted by Anton Sviridenko, executive director of the P. A. Stolypin Institute for Growth Economics, in an interview with Expert.

"From an international legal point of view, sanctions are unilateral restrictive measures that contradict the principles and norms of international law. These sanctions violate the principles of sovereign equality of states, non-interference in internal affairs and free trade. Consequently, it is both feasible and imperative to circumvent these sanctions, adhering to the legal framework and with proper legal justification. States have the right to protect their economic interests and ensure the well-being of their citizens, relying on the norms of international law," adds Vadim Petrov, an international lawyer and member of the Intersessional Financial Advisory Group of the IOC UNESCO.
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The initiators of the sanctions have, of course, found a justification for trade restrictions in US law: the 2017 legislation entitled "Countering America's Adversaries Through Sanctions". Director General of the Russian International Affairs Council (RIAC) Ivan Timofeev adds to it the provisions of the US Presidential Executive Order No. 14114 of December 22, 2023, which gives the US Treasury authority to impose blocking and other sanctions against foreign financial institutions that carry out transactions related to the Russian military-industrial complex and certain dual-use goods. In addition, certain provisions of Art. 1 of Executive Order No. 14024 of April 15, 2021, stipulates that blocking sanctions can be imposed on any persons, including those from third countries, interacting with specific sectors of the Russian economy: financial, mining, construction, electronics and others.

According to Ivan Timofeev, as of mid-December, 744 foreign companies were subject to secondary blocking sanctions, meaning their assets in the United States are frozen and any transactions with them in the States are prohibited. "The United States interprets its jurisdiction very broadly. If transactions involving dollars are made in favour of such individuals, the counterparty may face criminal liability, as the United States considers settlements in dollars to be within its jurisdiction and enforces its legal framework in such cases.
In the presentation given by the head of the Russian International Affairs Council at the 17th Verona Eurasian Economic Forum (which took place on December 5-6 in the UAE), it was revealed that in 2022, the US Treasury Department imposed prohibitive measures against 76 foreign legal entities associated with Russia. By 2023, this figure had increased to 235, and in the first eight months of 2024, it rose to 278. This indicates a rapid escalation in the imposition of secondary sanctions on "friendly" businesses, with a notable increase occurring in the second half of last year.Ivan Timofeev attributes this surge to the accumulation of evidence pertaining to "violations" by various States.According to data as of the end of November, the largest number of secondary sanctions were imposed on companies from China, with 207 cases recorded. Almost half as many were imposed on the structures of Russia's second most important trading partner, Turkey (106), and one of the most important financial hubs for our country, the UAE (101).
Cyprus ranks fourth in terms of the number of companies that have fallen under secondary sanctions, India ranks fifth, and Switzerland ranks sixth. In all of these countries, except Cyprus, sanctions were imposed mainly for violations of export supply rules, while in Cyprus, it was mostly companies that were simply affiliated with Russian structures that came under attack.

It is notable that businesses in post-Soviet countries account for only 29% of the total volume of secondary sanctions. This is primarily due to the fact that these countries do not possess many of the technologies and goods that Russia requires, and also because it is more challenging for the US to track the supply of goods from these countries and the conduct of payments with them.

It is noteworthy that secondary sanctions are occasionally lifted, though infrequently. Eighteen cases have been documented, all of which resulted from the termination of relations with Russian counterparties.Similar data is provided by the law firm Brace. According to their data, by the end of the first half of 2024, 494 companies from 57 countries were subject to secondary US sanctions for ties to Russia. The most prevalent reason for this (51% of cases) was for deliveries to Russia of "high-priority electronics, industrial goods, and equipment under export control of the US Treasury Department." 38% of restrictions were imposed due to a company's ties to a sanctioned entity (including a legal entity). Logistics lags far behind, ranking third but accounting for only 4% of cases.
It is noteworthy that secondary sanctions were not imposed on any large, global company. Firstly, large corporations have powerful legal and compliance departments that monitor compliance with international sanctions regimes. Secondly, the application of sanctions to large companies may cause a negative reaction from their governments and entail diplomatic complications, especially given their transnational nature. Thirdly, such measures may negatively affect the global economy, which the collective West seeks to avoid," Vadim Petrov explained.
Secondary sanctions are more problematic because they have a psychological impact on businesses in friendly countries. There is a general reluctance to work with individuals or entities subject to American sanctions, extending beyond the scope of the American legal jurisdiction. Some of Russia's trading partners utilise the potential risks associated with sanctions as a justification for price escalation.

However, it is widely acknowledged that Russia will continue to find ways to bypass these sanctions. One strategy that has been employed is the establishment of a network of "layer" companies for the purchase or sale of goods in the external circuit."Many structures that were subject to American secondary sanctions were created precisely to circumvent the sanctions. These companies will eventually be exposed. While some have only completed five contracts, there are those that have made as many as 1,500 deliveries, totalling tens of millions of dollars," the head of the Russian International Affairs Council noted.

The success of this confrontation will depend on the efficiency of the American "controllers". As Ivan Timofeev reported, US monitors of sanctioned goods movement are not only reliant on analysis of dollar transactions, but also on indirect signs, such as information from banks and embassies. American manufacturers themselves often monitor the movement of their sold goods and, if they suspect "violations", report this to the authorities.
"Intelligence, cooperation with allies, monitoring of international financial flows and trade operations play an important role. Modern Big Data and artificial intelligence technologies facilitate the tracking of complex schemes to circumvent sanctions, including transactions in alternative currencies and the use of offshore companies," added Vadim Petrov.

One of the mechanisms of counteraction is the development of an alternative system of trade and payments. "When faced with constraints, it is essential to explore alternative options. In the context of the dominance of a few reserve currencies, countries that do not align with this dominant framework, and therefore lack a voice in decision-making, face a dilemma: either acquiescing to unfavourable terms or seeking alternative solutions. The successful implementation of an alternative system will be a significant achievement. The West stands to benefit from this development.

It is possible that such a system is already in development within the BRICS. It is noteworthy that the recently elected US President, Donald Trump, has indicated his intention to impose 100 percent tariffs on goods from countries that relinquish the dollar in international transactions. "We demand that these countries commit to not creating a new BRICS currency or supporting any other currency that replaces the mighty US dollar. Otherwise, they will face 100 percent duties and will no longer be able to sell their goods to the US economy," Donald Trump wrote on the social media platform Truth Social.
However, such statements should be treated with a degree of scepticism. The construction of any trade barriers will inevitably cause opposition, and American corporations also need to sell their products. Moreover, not only would a complete refusal, but even a reduction in the supply of cheap Chinese and Indian goods to the States would cause an acceleration of inflation in what is still the largest global economy, which the electorate would be unlikely to forgive the American leader and the Republicans for.