The U.S. and its European allies have recently ramped up their enforcement actions against individuals accused of circumventing sanctions against Russia meant to curtail its military and defense supply chains.
Just last month, the U.S. Attorney’s Office in the Southern District of New York announced the arrest of a Hong-Kong based Russian national for illicitly procuring large quantities of U.S.-manufactured dual-use microelectronics for Russia. Through a web of shell companies, Maxim Marchenko operated an overseas smuggling ring to ship technology with military applications to Russia, according to U.S. authorities.
U.S. authorities said the arrest serves as a reminder that the government will use every tool at its disposal to enforce its sanctions as a means to protect U.S. national security interests and counter Russian aggression in Ukraine.
“We are laser-focused on rooting out the procurement networks fueling the Russian war machine,” said Matthew Axelrod, an assistant secretary at the Department of Commerce, in a statement.
“Working hand-in-hand with our federal law enforcement partners, we will continue to identify and disrupt Russia’s use of front companies in the People’s Republic of China and elsewhere to evade our controls,” he added.
European authorities have also stepped up their efforts to block Russian sanctions evasion. In March, German authorities arrested Waldemar W, a local supplier of a global procurement network that supports Russia’s evasion efforts and development of a military drone program in spite of western sanctions.
Dutch authorities also followed suit when they arrested an employee of its Ministry of Defense in late August for allegedly sending aircraft parts to Russia through an intermediary. Dozens of other criminal investigations by the Dutch financial crimes inspectorate (FIOD) are reportedly ongoing for suspected Russia sanctions evasion since early 2023.
The recent arrests come as the European Union and other governments have issued new guidance on proper due diligence and red flags for operators to assess exposure to sanctions circumvention and trade evasion risks.
The European Council in June also introduced an EU-wide legislation, that has since been adopted into law, that criminalizes sanctions evasion.
U.S. Arrest of Russian International Money Launderer
According to the U.S. complaint, Maxim Marchenko was charged with conspiring to defraud the United States and with smuggling, wire fraud, and money laundering offenses.
“Following Russia’s unjust invasion of Ukraine, Marchenko and his co-conspirators are alleged to have used shell companies and other deceptive measures in order to secure U.S.-manufactured microelectronics, with applications including in rifle scopes, night-vision goggles, thermal optics, and weapon systems, for use by Russians,” said Damian Williams, the United States Attorney for the Southern District of New York, in a statement.
Kharon’s research previously reported on several Hong Kong-based enterprises, including those owned and managed by Marchenko, that are supplying high priority HS code products to Russia. HS codes are an international system of classification for all goods that pass through federal customs organizations. Companies under the control of Marchenko were used to ship microelectronic components using a shell company in Mongolia as a conduit, according to corporate and trade records.
The Case of “Waldemar W” in Germany
Identified publicly as “Waldemar W” due to Germany’s privacy rules, the German-Russian national arrested by German authorities in March, allegedly exported electronic components to a Russian military company whose production includes the ‘Orlan-10’ drone currently used by Russian forces in Ukraine.
On 26 occasions between January 2020 and March 2023, “Waldemar W” reportedly exported electronic components to a company in Russia producing military hardware and accessory parts, according to German authorities. Products shipped by “Waldemar W” and his companies are covered under the European Union’s Russia Embargo Regulations, a German prosecutor said in a written statement, The Associated Press reported.
“Waldemar W” founded and managed two unnamed companies in the western German state of Saarland that facilitated his import-export business, according to the German Federal Public Prosecutor General.
A previous Kharon investigation identified Weicom Components GmbH and Industrial Components Weirich – two Saarland-based import and export companies – as directly associated with a “Waldemar Weirich.” According to German corporate records and the companies’ websites, the two entities are involved in the trade of electronic components and industrial products. Industrial Components Weirich has shipped semiconductors, radio equipment, and other electronic components into Russia in recent years, according to trade data.
Industrial Components Weirich describes itself as “the creators and main developers of devices and modules for network infrastructure and wir[e] communication.” While not formally listed in Germany’s corporate registry, the company has exported more than $1.6 million of electronic goods to SMT iLogic, a Russian company sanctioned in May by the State Department for its involvement in a “large-scale procurement network to obtain foreign-origin technology for the Special Technology Center’s manufacture of Orlan drones.”
