Market Analysis

Since March 2022, when the United States and the European Union banned the export of their currencies to Russia following its invasion of Ukraine, approximately $2.3 billion in U.S. dollars and euros have been shipped to Russia.

These previously unreported figures indicate that Russia has found ways to circumvent sanctions aimed at blocking cash imports, underscoring that dollars and euros continue to be valuable for trade and travel, even as Moscow tries to reduce its reliance on these hard currencies.

The customs data, sourced from a commercial provider that tracks and compiles such information, reveals that cash was delivered to Russia from countries like the UAE and Turkey, which have not imposed trade restrictions on Russia. However, the origin country for more than half of the total amount remains unspecified in the records.

In December, the U.S. government warned financial institutions against assisting Russia in evading sanctions and has imposed sanctions on companies from third countries throughout 2023 and 2024.

Although the Chinese yuan has surpassed the dollar as the most traded foreign currency in Moscow, significant payment challenges persist.

Dmitry Polevoy, head of investment at Astra Asset Management in Russia, noted that many Russians still prefer to hold foreign currency in cash for travel abroad, small imports, and domestic savings. "For individuals, the dollar is still a reliable currency," he told Reuters.

Neither Russia’s central bank nor the Office of Foreign Assets Control (OFAC), the U.S. sanctions authority, responded to requests for comment.

In 2022, Russia began referring to the dollar and euro as "toxic" currencies as extensive sanctions limited its access to the global financial system, disrupting payments and trade. Around $300 billion of Russia's foreign reserves held in Europe have been frozen.

A spokesperson for the European Commission declined to comment on individual cases of sanctions enforcement, noting that the European Union engages with third countries when it suspects sanctions are being circumvented.

The customs records cover the period from March 2022 to December 2023, and Reuters was unable to access more recent data.

The documents also show a significant increase in cash imports just before the invasion. Between November 2021 and February 2022, $18.9 billion in dollar and euro banknotes were sent to Russia, compared to just $17 million in the preceding four months.

Daniel Pickard, leader of the International Trade & National Security Practice Group at U.S. law firm Buchanan Ingersoll & Rooney, suggested that the pre-invasion surge in shipments indicated some Russians sought to protect themselves from potential sanctions. "While the U.S. and its allies have recognized the need for collective action to maximize economic impact, Russia has been learning how to evade and lessen those same impacts," Pickard said, adding that the data likely understates the actual flow of currency.

LIMITED OUTFLOWS

In response to the invasion of Ukraine, Russia's central bank quickly restricted individuals' foreign currency cash withdrawals to support the weakening rouble.

The data shows that only $98 million in dollar and euro banknotes left Russia between February 2022 and the end of 2023.

In contrast, foreign currency inflows were significantly higher. The largest single declarant of foreign currency was Aero-Trade, a lesser-known company offering duty-free shopping services in airports and on flights. During that period, it declared approximately $1.5 billion in banknotes.

Aero-Trade registered 73 shipments of 20 million dollars or euros each, all cleared at Moscow's Domodedovo airport, an international hub near the company’s headquarters. The shipments were listed in customs declarations as either exchange or revenue from onboard trade.

In most cases, Aero-Trade was listed only as the declarant, the entity responsible for preparing and submitting customs documentation. Reuters could not identify Aero-Trade's clients or determine the source or destination of the cash.

Aero-Trade’s owner, Artem Martynyuk, expressed skepticism about the authenticity of the customs records and declined further comment. The company stated that "Aero-Trade is not involved in the supply of hard currency to Russia."

According to the customs records, one shipment of 20 million euros handled by Aero-Trade was imported in February of last year by Yves Rocher Vostok, a subsidiary of the French cosmetics group Yves Rocher, which continues to operate dozens of stores in Russia. The country of origin or supplier name was not listed in the data.

Groupe Rocher, the parent company in France, stated that neither the group nor Yves Rocher Vostok had any connection with Aero-Trade or requested the transfer in question.

"Yves Rocher Vostok, like all Groupe Rocher entities, complies with the law," a spokesperson for the group said. "It has never attempted, nor will it ever attempt, to circumvent the sanctions on dollar and euro banknote imports into Russia."

GOLD, ARMS, BANKING

More than a quarter of the $2.27 billion in banknotes was imported by banks, much of it in exchange for precious metals, according to the customs records and a person familiar with the transactions.

Several Russian banks received cash worth $580 million from abroad between March 2022 and December 2023, while exporting roughly equivalent amounts of precious metals. In many cases, the gold or silver shipments were sent to the companies that supplied the banknotes, the records show.

For example, Russian lender Vitabank imported $64.8 million in banknotes from Turkish gold trading firm Demas Kuyumculuk in 2022 and 2023. During the same period, Vitabank exported $59.5 million in gold and silver to the Turkish company.

A person familiar with Demas' operations confirmed that the company engaged in a series of cash-for-gold transactions involving Vitabank and two other Russian lenders between March 2022 and September 2023.

The source explained that delivering banknotes from the UAE to Russia was the only solution Demas found to fulfill long-term contracts signed with Russian gold suppliers before Western sanctions took effect, while still complying with Turkish and international regulations on cross-border payments.

According to the source, failing to honor existing agreements would have exposed Demas to financial penalties and reputational risks. The Turkish gold trader has never done business with entities under Western sanctions and strictly adheres to all national and international compliance procedures.

In the third quarter of last year, after all pre-war contracts with Russian companies were fulfilled, Demas ceased the two-way trades, the source added.

Vitabank, the UAE, and the Turkish presidency's communications directorate did not respond to Reuters' requests for comment.

Other major cash importers included entities controlled by Rostec, the state-owned military-industrial conglomerate, according to the documents.

Rostec, which has been under U.S. sanctions since 2014, did not respond to Reuters' inquiries regarding the cash payments it received.

Paraphrasing text from "Reuters" all rights reserved by the original author.