Russia circumvents sanctions, inundating global markets with an abundance of gold.

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Russia has been using various methods to circumvent sanctions and continue its gold trade. One way is through illicit gold markets and gold laundering. Despite G7 and EU sanctions blocking traditional export routes, Russia has found new markets in countries that have not imposed sanctions on Moscow, such as the UAE, Turkey, and China. Some countries are also repatriating gold reserves as protection against the sort of sanctions imposed by the West on Russia. 

However, there are risks involved in buying Russian gold, as it could be sourced from sanctioned entities. Due diligence is instrumental for end buyers wishing to ensure they respect sanctions regimes. The US Treasury has also sanctioned illicit gold companies funding Wagner. The short-term impacts of sanctions on Russia’s gold trade are constrained by the fact that they largely do not impact transactions to Russia’s energy sector, the country’s lifeblood, and because the EU has not sanctioned some of Russia’s largest banks.

The Shifting Landscape of Russian Gold Trade Amidst Sanctions

The stranglehold of sanctions imposed by the UK, US, and EU on Russia in response to its invasion of Ukraine has substantially curtailed Moscow’s and other sanctioned entities’ ability to access and maneuver finances. As these sanctions grow increasingly stringent, questions arise about how Moscow and the targeted entities, including Russian individuals and companies, will secure funds, facilitate international money transfers, and access foreign exchange in the future. Illicit gold networks are emerging as a possible avenue to address these challenges. As Moscow finds itself isolated from foreign currency and financial systems, illicit gold markets and gold laundering present a potential means for Moscow and other sanctioned actors to generate profits and facilitate cross-border financial transactions.

Navigating the Illicit Gold Trade:

Gold, with its unique characteristics, offers an alternative route for Moscow and other entities subject to sanctions. Unlike digital financial networks, such as SWIFT, gold can be physically transported worldwide, evading traditional tracking mechanisms. Furthermore, gold’s origins can be concealed or disguised, making it an appealing vehicle for illicit financial activities. Moscow could potentially leverage foreign exchange reserves acquired through illicit gold markets for various purposes, including imports, funding military operations, or compensating sanctioned Russian oligarchs for their losses. Beyond Moscow, other sanctioned actors may also tap into criminal networks to launder and smuggle gold.

Evolving Strategies Amidst Sanctions:

The illicit gold market, already well-established and resilient, offers a range of economic options to Moscow and other beleaguered sanctioned entities. Recognizing the potential use of criminal networks to exploit gold markets and evade sanctions is paramount. Developing targeted responses to counter the abuse of gold markets serves not only to enhance the effectiveness of sanctions but also to mitigate unintended consequences.

The Shifting Landscape of Russian Gold Trade:

Despite Western sanctions, Russia has sought alternative channels for its gold exports. The United Arab Emirates, Turkey, and China have emerged as key trade hubs as Russian producers adapt to the changing geopolitical landscape. These countries remain open to dealing in Russian gold due to the absence of secondary sanctions. Nevertheless, the EU and G7’s restrictions on Russian gold imports may not entirely safeguard member countries from inadvertently entering sanctioned metal markets. Ensuring due diligence in trade operations becomes essential for end buyers striving to adhere to sanctions regimes.

Closing Off Global Gold Markets:

The global gold market, particularly the UK market, plays a pivotal role in Russian gold flows. In 2020, Russia exported a substantial $16.9 billion worth of gold to the UK, making it the primary destination. However, new UK sanctions prohibit dealings in money-market instruments, and gold falls under this category. London’s gold market, one of the world’s most significant bullion centers, strictly adheres to rules that prohibit trading with entities violating economic and trade sanctions. Consequently, Russian gold bars are effectively barred from entering London’s market, a hub for trillions of dollars in precious metal trade annually.

As the sanctions landscape continues to evolve, Moscow and sanctioned actors explore unconventional avenues to navigate the financial blockade, raising concerns about illicit gold trade networks and their impact on global markets.

Impact of Secondary Sanctions:

Secondary sanctions, which target third parties conducting transactions with sanctioned entities, pose significant challenges to Russia and its allies. The prevalence of the US dollar in international transactions gives the US a powerful jurisdictional advantage. Even transactions made outside the US can be subject to US authorities’ scrutiny if they involve sanctioned entities. The EU and UK are also tightening the noose, with restrictions blocking access to foreign exchange markets, especially in London, a global financial powerhouse.

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