EU Anti-Circumvention Sanctions Spark Policy Change in Kyrgyzstan

Russia depends on foreign jurisdictions to help it circumvent Western sanctions — but secondary sanctions have raised the cost of abetting this sanctions evasion, deterring at least some facilitation of such illicit conduct. On May 19, Kyrgyzstan’s Ministry of Justice blocked the operations of 50 companies for involvement in business with likely ties to sanctioned partners. This is the first time Kyrgyzstan has shuttered companies over cooperation with sanctioned entities.

Bishkek’s efforts to reduce sanctions exposure come in reaction to increased Western scrutiny. Last month, the European Union rolled out its 20th Russian sanctions package and new anti-circumvention tool — for the first time applying export-control sanctions to an enabling country as a whole rather than to specific entities supporting sanctions evasion. The changes within Kyrgyzstan are a strong indicator that the sanctions are having the desired impact and that Kyrgyz officials are willing to come to the table to discuss reform. However, Kyrgyzstan has deeper, structural exposure to sanctioned entities that such steps do not eradicate.

Kyrgyzstan Is Looking To Maintain Western Ties

Kyrgyzstan has a strong interest in avoiding further Western sanctions and in getting existing sanctions lifted. Country-level export controls and targeted sanctions on Kyrgyz entities threaten ties to Western banking systems, weaken access to Western markets, and fuel global perceptions that Kyrgyzstan is a high-risk jurisdiction. This, in turn, jeopardizes Kyrgyz efforts to draw in Western mining investments and threatens existing partnerships with foreign businesses and even the very transshipment schemes that depend on Western connectivity.

Initially, officials dismissed sanctions evasion claims as “politicizing the economy” and reportedly threatened to sue the EU. More recently, Kyrgyz officials are prioritizing efforts to restore faith in Kyrgyz institutions. Since the implementation of the EU’s 20th sanctions package, Kyrgyzstan has issued an interagency order “to identify bad-faith participants in foreign economic activity” and protect the country from secondary sanctions risk. Kyrgyz officials indicated that the 50 newly restricted companies, while not publicly named, were drawn from a list of 51 high-risk companies provided by the United States and the United Kingdom.

Sanctions Evasion Remains a Growing Industry in Kyrgyzstan

Despite recent reforms, whole sectors of the Kyrgyz economy have emerged around its role as a sanctions evasion hub. Kyrgyz companies import restricted and dual-use items, obfuscate their origins, relabel them, and sell them to Russia at a profit. Major shifts in trade patterns since the start of Russia’s renewed war in Ukraine signal blatant transshipment efforts: an 800 percent uptick in imports of high-risk dual-use imports from the European Union; a 1,200 percent increase in exports of those same goods to Russia; and a 41,105 percent single-year increase in exports of nuclear reactors and related items.

Meanwhile, Kyrgyzstan’s emerging cryptocurrency sector is bolstered by demand for vehicles to facilitate Russian money laundering. As Russian financial institutions face Western-imposed limitations, Kyrgyzstan-based intermediaries accept Russian payments, purchase cryptocurrency locally, and then sell that cryptocurrency abroad for legitimate currency that can be used in transactions. The state is profiting from increased cryptocurrency usage, so it has little incentive to confront the problem. By 2025, the Kyrgyz government already collected more taxes from cryptocurrency revenue than it did from the leading wholesale bazaar in the region.

Successful Sanctions Lead to Reform and Removal

Economic sanctions are designed to be temporary, coercive measures resulting in a change in behavior, not perpetual punishment. While Kyrgyzstan remains a high-risk center for sanctions evasion, national reform in coordination with sanctions aims is an extremely positive sign. Western partners, and the European Union in particular, should increase dialogue and coordination with Kyrgyz authorities and clearly lay out steps Bishkek can take to earn sanctions removal. This may occur gradually.

Kyrgyzstan provides a test case for the broader use of the EU’s anti-circumvention tool in enabling jurisdictions. To provide the strongest example to other enabling jurisdictions — such as neighboring Kazakhstan — the West benefits from highlighting both the consequences of Kyrgyz sanctions evasion and the opportunities presented by compliance.

Angela Howard is a research analyst at the Center on Economic and Financial Power (CEFP) at the Foundation for Defense of Democracies (FDD). For more analysis from the author and FDD, please subscribe HERE. Follow FDD on X @FDD and @FDD_CEFP. Follow Angela on X @angela__howard. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.