August 30, 2021 | The National Interest

Biden Must Stop Russia’s Illicit Procurement of Sensitive American Technologies

Investigations have exposed many Russian illicit procurement schemes in recent years, targeting items ranging from sensitive diving equipment to dual-use machine tools to components used in night-vision and thermal-imaging devices.
August 30, 2021 | The National Interest

Biden Must Stop Russia’s Illicit Procurement of Sensitive American Technologies

Investigations have exposed many Russian illicit procurement schemes in recent years, targeting items ranging from sensitive diving equipment to dual-use machine tools to components used in night-vision and thermal-imaging devices.

Federal agents last year raided a New Hampshire company linked to the Russian Federal Security Services, or FSB, according to court documents unsealed in July. Investigators acted on evidence that the firm, Intertech Corporation, was illegally exporting U.S. equipment with potential applications in Moscow’s covert chemical and biological weapons programs. This is hardly an isolated case: The Russians have long relied on illicit procurement schemes to acquire sensitive Western technologies. The practice appears to be increasing, undermining America’s military edge and efforts to contain Russia’s security threats.

Despite Moscow’s ongoing military modernization and import-substitution programs, Russia struggles to indigenously produce certain sensitive technologies, components, and equipment. This leaves Russia reliant on foreign—often Western—suppliers, but Western sanctions and export controls restrict such exports. As the U.S. Treasury Department warned in 2018, the Russians seek to circumvent these restrictions through “illicit procurement” schemes, often employing front or shell companies to obscure an export’s destination or end-user.

This long-standing practice dates back to the Cold War when the Soviet KGB and GRU intelligence services used covert networks to steal Western technology. After initially subsiding following the Soviet Union’s collapse, these operations appear to have accelerated since the 2000s. In fact, a senior U.S. law enforcement official interviewed by the authors said that the U.S. government has noticed an uptick in Russia’s illegal attempts to acquire controlled dual-use goods over the past year alone.

In Intertech’s case, the U.S. government reportedly believes the company failed to identify Russia’s FSB as the end-user of five shipments of scientific instruments in 2015 and 2016. Some of the shipments allegedly went to the Criminalistics Institute, an FSB unit likely responsible for producing and administering the Novichok nerve agent used to poison Russian opposition figure Alexei Navalny last year.

In 2018, after U.S. authorities warned Intertech that such Russia-bound exports require a license in order to prevent diversion “to chemical or biological end uses,” the firm allegedly began using a front company to obscure shipments to a Moscow-based Intertech subsidiary with longstanding FSB ties. U.S. prosecutors have yet to charge either Intertech or its subsidiary with a crime, but the Commerce Department sanctioned the subsidiary in March 2021 for “proliferation activities in support of Russia’s weapons of mass destruction  (WMD) programs and chemical weapons activities.”

Investigations have exposed many other Russian illicit procurement schemes in recent years, targeting items ranging from sensitive diving equipment to dual-use machine tools to components used in night-vision and thermal-imaging devices.

A particularly important target is microelectronics. Reliance on foreign suppliers remains a vulnerability for Russia’s defense, space, and other high-tech industries. Earlier this year, for example, the head of Russia’s Roscosmos space agency lamented that his organization is struggling to launch some satellites since Western sanctions block imports of certain microchips. In 2012 and 2018, the Department of Justice (DOJ) revealed large-scale Russian operations smuggling export-controlled microelectronics to the FSB and Russian defense manufacturers, with the proceeds laundered through numerous offshore bank accounts and shell companies. This past December, DOJ charged a Russian and two Bulgarian nationals with using a Bulgarian front company to smuggle radiation-hardened chips to Russia’s military and space program.

As these examples illustrate, U.S. government agencies have rightly increased their efforts to combat Russian illicit procurement. Nevertheless, it remains unclear how much they have not managed to stop. Michael Carpenter, who served as deputy assistant secretary of defense responsible for Russia during the Obama administration, said in 2018 that U.S. law enforcement has exposed only “a tiny fraction of … Russian covert activities regarding the theft of sensitive technologies.” He argued that the U.S. government must get a “lot tougher” busting Russian illicit procurement networks.

To do so, government investigators should expand dialogue with the private sector, whose personnel are on the front line in detecting and preventing Russian and other illicit procurement. While U.S. businesses often know best the potential nefarious uses of their products, they are not intelligence agents capable of fully investigating the identities of their customers. This is particularly true when the actual end-user is obscured behind layers of front companies, middlemen, and foreign banks, all potentially located in countries friendly to the United States. Often, unbeknown to the original seller, illicit buyers will secretly route exports from foreign transshipment points to proliferant states.

Smaller American firms that sell controlled or dual-use goods typically lack the resources to have their own export compliance departments. Greater information sharing and training from the government could help these companies improve detection of illicit procurement attempts. For example, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations has an active outreach program, Project Shield America. Raising the profile of such programs would help reach additional small-to-medium-sized companies. Law enforcement or export licensing agencies should also provide an agent, rather than general hotlines to share crime tips, that companies could call for assistance if a sales inquiry seems suspicious. Companies should be able not only to report suspicious activity but also to obtain government advice. The government, in turn, would receive expanded real-time information and opportunities to warn companies about illicit procurement attempts.

In addition to improving government-private sector cooperation, the United States should also directly target Moscow’s weapons programs and illicit procurement networks. Last week, pursuant to the Chemical and Biological Weapons Control and Warfare Elimination Act, the Biden administration enacted an overdue round of mandatory sanctions over Russia’s attack on Navalny, designating two Russian chemical weapons development institutes. The Treasury Department also sanctioned the Criminalistics Institute and other entities and individuals allegedly involved in the Navalny attack or Russia’s chemical weapons program.

The U.S. government, however, has not designated SC Signal, a Russian research institute officially engaged in developing nutrition drinks but secretly involved in Russia’s chemical weapons program. The investigative group Bellingcat’s lead Russia investigator warned that failing to sanction SC Signal could allow it to “continue to have access to purchasing sophisticated Western technology, including chromatography/spectrometry equipment that [the institute] can’t buy locally.” Treasury also has yet to sanction numerous other individuals—including multiple SC Signal employees—allegedly involved in Russia’s chemical weapons program, potentially creating similar vulnerabilities.

Likewise, the United States and its allies should ramp up designations against the overseas shell and front companies that facilitate Russian illicit procurement efforts. More aggressive designations against Russia’s broader illicit financial ecosystem could prove helpful. Open-source evidence suggests that some of the same professional money laundering networks used to launder dirty money from Russian government corruption also facilitate Moscow’s illicit procurement. Washington and allied governments should consider devoting additional intelligence resources and improving information sharing to help identify these transnational schemes and bolster sanctions enforcement.

If stringently enforced, U.S. export controls and sanctions targeting Russia’s defense and security industries can help preserve America’s military advantage and contain Russian WMD threats. Washington should take action to strengthen these tools and combat Russia’s theft of critical technologies.

 Andrea Stricker is a research fellow at the Foundation for Defense of Democracies (FDD), where John Hardie is research manager. Follow Andrea on Twitter @StrickerNonpro. FDD is a Washington, DC-based, nonpartisan research institute focused on foreign policy and national security.

Read in The National Interest

Issues:

Nonproliferation Russia Sanctions and Illicit Finance