Welcome to The Dekleptocracy Report! The Dekleptocracy Project (TDP) is a 501(c)(3) based in Virginia. We’re on a mission to show how existing levers of accountability can protect democracy and prevent authoritarians, their networks, and enablers from exploiting or circumventing the US system.
IN-DEPTH – PRIORITIZING CENTRAL ASIA
The impact of the full-scale invasion of Ukraine in February 2022 continues to reverberate through the former Soviet states of Central Asia. Notably, large quantities of exports from the EU – and to a lesser extent the US – destined for Russia now go via Central Asia (either physically or notionally). EU exports to the region (and the South Caucasus) are up 74% since the invasion through August 2023, replacing a large share of export volumes no longer going directly to Russia. In the meantime, the EU’s latest sanctions package is reportedly aiming to target more Central Asian companies over dual-use goods re-exported to Russia. This raises concerns that an overly punitive approach – not accompanied by clear offers of development, security and other incentives, while ignoring the Western companies that facilitate this trade – may only alienate local leaders and destabilize the region.
It’s always dangerous to lump these five states – Kazakhstan, Kyrgyzstan, Tajikistan and Turkmenistan and Uzbekistan – together, despite obvious common ethnic, historical, religious and linguistic roots (the languages spoken in these countries are primarily Turkic, with the exemption of Tajik, which is closely related to Farsi and Dari). Kazakhstan, with 50% fewer people than Uzbekistan, has the largest economy in the region and has vied with Ukraine for the second-largest post-Soviet economy after Russia. It is the only one with large land borders with Russia and China. Before violence erupted in January 2022 – ostensibly over sharp rises in fuel prices – it was also one of the most stable. By contrast, the World Bank calculated that remittances, mainly from Russia, accounted for 51%, 31% and 21% of the Kyrgyz, Tajik and Uzbek economies, respectively. Turkmenistan, largely closed off from its neighbors, rations many food products, despite being a significant exporter of natural gas. Iran plays an important role in some of these states, while Turkey is a major investor in others.
Insecurity
Four of the five states (excluding Turkmenistan) belong to the Shanghai Cooperation Organization (SCO), a regional security bloc with China, and the Russian-led Collective Security Treaty Organization (CSTO). The latter sent Russian troops after the turmoil in Kazakhstan last year. Turkmenistan, Uzbekistan and Tajikistan have long borders with Afghanistan, and Russia has had around 7,000 troops in Tajikistan (amid reports that 1,500 were redeployed to Ukraine). Kyrgyzstan and Tajikistan have a long-simmering border dispute that fueled a significant armed clash in September 2022. Bloody riots between ethnic Kyrgyz and Uzbeks in and around Osh in 1990 presaged the wider Soviet collapse, while 2010 clashes led to the violent ouster of the Kyrgyz then-president. A security vacuum in the region has persisted for nearly three decades, but Russia’s diversion of yet more resources to fight Ukraine has left the region even more unsettled.
The economic situation is also troubled despite relatively robust nominal GDP growth rates across the five countries, fed by higher commodity prices and the war-driven boom. As the Caspian is a land-locked sea, most Kazakh crude goes to Russia for processing and export, giving Moscow the ability to dictate economic terms. And the largest economies framing the region – Russia and China – are both struggling, albeit on very different scales. Within the Eurasian Economic Union free trade zone, the convertibility of the Russian ruble to the Kazakh tenge, the strongest regional currency, helps fuel inflation as Russians take the ruble abroad to buy goods, including parallel imports such as iPhones. On the other hand, when Western companies do boycott Russia, it means goods actually destined for Central Asia take more costly and circuitous routes to avoid passage through Russian territory, which also drives up prices.
Engagement
As the Institute for International Finance’s Robin Brooks and others have demonstrated, there’s no question that a large share of Russian imports flow through Central Asia, although sometimes this is merely labeling rather than the physical diversion of products. In mid-December, the US sanctioned a St. Petersburg company that was reportedly receiving electronics from a Kazakh company with a common founder. Still, Kazakhstan has been the most forthright about observing Western sanctions, and two large Russian banks exited the country in 2022. Meanwhile, back in August, (embattled) Senator Bob Menendez (D-NJ) called on Kyrgyz President Sadyr Japarov to address alleged sanctions evasion by “Russia and its proxies” using the country.
The OSINT community can help publicly identify the networks bringing dual-use goods into Russia from Central Asia, and designations of the companies and their owners can disrupt their operations. But the West can also consistently engage with all five countries in a post-colonial setting where, unusually, Europe and the US do not bring (much) of their own baggage. After September 11, 2001, the West was able to negotiate the temporary use of air bases in Kyrgyzstan and Uzbekistan for the Afghan campaign. The US and its allies can engage in what Kazakhstan has long dubbed “multi-vector” engagement, code for diversifying its economy and foreign policy ties beyond Russia and China.
Outside of significant private-sector investments in resource extraction, primarily in Kazakhstan, Western countries need to ask what they’ve done for Central Asia on a strategic level (with the important exception of development aid) over the past 20 years. What message did our Afghanistan exit send to them? One obvious caveat is the challenge of dealing with deeply corrupt leaders who inherited their positions from or even were, Soviet bosses. However, a new generation of leaders is also emerging, many with foreign exposure and education. The most recent round of legislative elections in Kazakhstan provided some hints of this transition, although the task of replacing older leaders raised in the Soviet era will take another decade; for instance, although the Economist named Uzbekistan the most improved country of the year in 2019, its second post-independence leader is now paving his way to be president-for-life.
Another step is to provide alternatives in both foreign policy and the economy to Russia. Notably, France has offered Dassault Rafale fighters to Kazakhstan and Uzbekistan, and previously sold them helicopters, sending an important signal to these countries that they have non-Russian options for their armed forces. Institutions such as the European Bank for Reconstruction and Development (despite the name, the US is a member) offer vetted ways to direct funds to projects. Western countries can lend resources for projects that prioritize a post-colonial identity, such as broadcasting in local languages rather than Russian (although the US still does this, the UK ended broadcasting in many regional languages in 2005). Projects for eco-tourism, alternative energy (including developing newer uranium mining sites in Uzbekistan and nearby Mongolia for nuclear power) and much more provide ‘know-how’ in areas where Western countries have obvious strengths. Finally, increased access to Western universities – as Kazakhstan promoted 20 years ago through its Bolashak scholarship program – continues to provide dividends for the country’s business and political world and fosters younger leaders with connections outside of Moscow and Beijing.
An Alternative Model
Finally, the West can help promote Central Asian identity as it is, without imposing a colonial project. Despite common cultural, linguistic, and economic ties, the five countries are remarkably diverse, not least because the Soviet Union exiled many of its minorities in the region. For example, Kazakhs live alongside (at least in the cities) ethnic Russians, Ukrainians, Uzbeks, Koreans, Georgians, Chechens and many more. Russian and English exist as languages of interethnic communication while the titular language flourishes. Kazakhstan has also attracted countries from around the world to invest in resource extraction, which has at least prevented monopolization of that sector.
In short, while hardly a model of liberal democracy, Kazakhstan has successfully established a relatively open, cosmopolitan society, and one potentially far more receptive to Western values than its equally diverse, more nominally European Russian neighbor. Since the war, many Russians have moved there, seen the stark differences, and experienced the downstream effects of their own government’s quixotic quest to force Kazakhstan to keep the Cyrillic alphabet. Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan all have their own roads to follow, but the US and its allies can support their national projects while intervening in targeted ways; for instance, the US should seek to halt Iranian construction of drone factories in Tajikistan while protecting minority populations and dissidents. It seems clear that Russia, China and Iran prefer Central Asian economies to operate as gray or black zones and do not try to give these countries the resources they need to develop as strong, independent states. If the free world seeks to disrupt the trade networks running through Central Asia to Russia, approaching regional actors with respect and resources, alongside a firm stance, is a critical first step. A close second is focusing, wherever possible, on identifying and stopping the Western enablers who made the trade possible in the first place.
IN-DEPTH – PRIORITIZING CENTRAL ASIA
The impact of the full-scale invasion of Ukraine in February 2022 continues to reverberate through the former Soviet states of Central Asia. Notably, large quantities of exports from the EU – and to a lesser extent the US – destined for Russia now go via Central Asia (either physically or notionally). EU exports to the region (and the South Caucasus) are up 74% since the invasion through August 2023, replacing a large share of export volumes no longer going directly to Russia. In the meantime, the EU’s latest sanctions package is reportedly aiming to target more Central Asian companies over dual-use goods re-exported to Russia. This raises concerns that an overly punitive approach – not accompanied by clear offers of development, security and other incentives, while ignoring the Western companies that facilitate this trade – may only alienate local leaders and destabilize the region.
It’s always dangerous to lump these five states – Kazakhstan, Kyrgyzstan, Tajikistan and Turkmenistan and Uzbekistan – together, despite obvious common ethnic, historical, religious and linguistic roots (the languages spoken in these countries are primarily Turkic, with the exemption of Tajik, which is closely related to Farsi and Dari). Kazakhstan, with 50% fewer people than Uzbekistan, has the largest economy in the region and has vied with Ukraine for the second-largest post-Soviet economy after Russia. It is the only one with large land borders with Russia and China. Before violence erupted in January 2022 – ostensibly over sharp rises in fuel prices – it was also one of the most stable. By contrast, the World Bank calculated that remittances, mainly from Russia, accounted for 51%, 31% and 21% of the Kyrgyz, Tajik and Uzbek economies, respectively. Turkmenistan, largely closed off from its neighbors, rations many food products, despite being a significant exporter of natural gas. Iran plays an important role in some of these states, while Turkey is a major investor in others.
Insecurity
Four of the five states (excluding Turkmenistan) belong to the Shanghai Cooperation Organization (SCO), a regional security bloc with China, and the Russian-led Collective Security Treaty Organization (CSTO). The latter sent Russian troops after the turmoil in Kazakhstan last year. Turkmenistan, Uzbekistan and Tajikistan have long borders with Afghanistan, and Russia has had around 7,000 troops in Tajikistan (amid reports that 1,500 were redeployed to Ukraine). Kyrgyzstan and Tajikistan have a long-simmering border dispute that fueled a significant armed clash in September 2022. Bloody riots between ethnic Kyrgyz and Uzbeks in and around Osh in 1990 presaged the wider Soviet collapse, while 2010 clashes led to the violent ouster of the Kyrgyz then-president. A security vacuum in the region has persisted for nearly three decades, but Russia’s diversion of yet more resources to fight Ukraine has left the region even more unsettled.
The economic situation is also troubled despite relatively robust nominal GDP growth rates across the five countries, fed by higher commodity prices and the war-driven boom. As the Caspian is a land-locked sea, most Kazakh crude goes to Russia for processing and export, giving Moscow the ability to dictate economic terms. And the largest economies framing the region – Russia and China – are both struggling, albeit on very different scales. Within the Eurasian Economic Union free trade zone, the convertibility of the Russian ruble to the Kazakh tenge, the strongest regional currency, helps fuel inflation as Russians take the ruble abroad to buy goods, including parallel imports such as iPhones. On the other hand, when Western companies do boycott Russia, it means goods destined for Central Asia take more costly and circuitous routes to avoid passage through Russian territory, which also drives up prices.
Engagement
As the Institute for International Finance’s Robin Brooks and others have demonstrated, there’s no question that a large share of Russian imports flow through Central Asia, although sometimes this is merely labeling rather than the physical diversion of products. In mid-December, the US sanctioned a St. Petersburg company that was reportedly receiving electronics from a Kazakh company with a common founder. Still, Kazakhstan has been the most forthright about observing Western sanctions, and two large Russian banks exited the country in 2022. Meanwhile, back in August, (embattled) Senator Bob Menendez (D-NJ) called on Kyrgyz President Sadyr Japarov to address alleged sanctions evasion by “Russia and its proxies” using the country.
The OSINT community can help publicly identify the networks bringing dual-use goods into Russia from Central Asia, and designations of the companies and their owners can disrupt their operations. But the West can also consistently engage with all five countries in a post-colonial setting where, unusually, Europe and the US do not bring (much) of their own baggage. After September 11, 2001, the West was able to negotiate the temporary use of air bases in Kyrgyzstan and Uzbekistan for the Afghan campaign. The US and its allies can engage in what Kazakhstan has long dubbed “multi-vector” engagement, code for diversifying its economy and foreign policy ties beyond Russia and China.
Outside of significant private-sector investments in resource extraction, primarily in Kazakhstan, Western countries need to ask what they’ve done for Central Asia on a strategic level (with the important exception of development aid) over the past 20 years. What message did our Afghanistan exit send to them? One obvious caveat is the challenge of dealing with deeply corrupt leaders who inherited their positions from or even were, the Soviet bosses. However, a new generation of leaders is also emerging, many with foreign exposure and education. The most recent round of legislative elections in Kazakhstan provided some hints of this transition, although the task of replacing older leaders raised in the Soviet era will take another decade; for instance, although the Economist named Uzbekistan the most improved country of the year in 2019, its second post-independence leader is now paving his way to be president-for-life.
Another step is to provide alternatives in both foreign policy and the economy to Russia. Notably, France has offered Dassault Rafale fighters to Kazakhstan and Uzbekistan, and previously sold them helicopters, sending an important signal to these countries that they have non-Russian options for their armed forces. Institutions such as the European Bank for Reconstruction and Development (despite the name, the US is a member) offer vetted ways to direct funds to projects. Western countries can lend resources for projects that prioritize a post-colonial identity, such as broadcasting in local languages rather than Russian (although the US still does this, the UK ended broadcasting in many regional languages in 2005). Projects for eco-tourism, alternative energy (including developing newer uranium mining sites in Uzbekistan and nearby Mongolia for nuclear power) and much more provide ‘know-how’ in areas where Western countries have obvious strengths. Finally, increased access to Western universities – as Kazakhstan promoted 20 years ago through its Bolashak scholarship program – continues to provide dividends for the country’s business and political world and fosters younger leaders with connections outside of Moscow and Beijing.
An Alternative Model
Finally, the West can help promote Central Asian identity as it is, without imposing a colonial project. Despite common cultural, linguistic, and economic ties, the five countries are remarkably diverse, not least because the Soviet Union exiled many of its minorities in the region. For example, Kazakhs live alongside (at least in the cities) ethnic Russians, Ukrainians, Uzbeks, Koreans, Georgians, Chechens and many more. Russian and English exist as languages of interethnic communication while the titular language flourishes. Kazakhstan has also attracted countries from around the world to invest in resource extraction, which has at least prevented monopolization of that sector.
In short, while hardly a model of liberal democracy, Kazakhstan has successfully established a relatively open, cosmopolitan society, and one potentially far more receptive to Western values than its equally diverse, more nominally European Russian neighbor. Since the war, many Russians have moved there, seen the stark differences, and experienced the downstream effects of their own government’s quixotic quest to force Kazakhstan to keep the Cyrillic alphabet. Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan all have their own roads to follow, but the US and its allies can support their national projects while intervening in targeted ways; for instance, the US should seek to halt Iranian construction of drone factories in Tajikistan while protecting minority populations and dissidents. It seems clear that Russia, China and Iran prefer Central Asian economies to operate as gray or black zones and do not try to give these countries the resources they need to develop as strong, independent states. If the free world seeks to disrupt the trade networks running through Central Asia to Russia, approaching regional actors with respect and resources, alongside a firm stance, is a critical first step. A close second is focusing, wherever possible, on identifying and stopping the Western enablers who made the trade possible in the first place.
Latest US Sanctions More Than ‘Whack-a-Mole’
The US Treasury and State Departments continued to target Russia’s “procurement network” across the world, with blockbuster announcements on December 12 designating 250 individuals and entities in China, Turkey and UAE, while also going after the network’s tentacles in Kyrgyzstan, Singapore, Switzerland and Tajikistan. The sanctions also specifically targeted shipping companies and other entities involved in the supply of North Korean weapons and munitions to Russia. They went after carefully chosen levers of Russia’s economy, specifically naming providers of LNG technology for Russia’s Baltic Ust-Luga port and gold mining companies linked to a prominent Russian businessman designated by the UK. Notably, in a separate raft of sanctions, the US also added ten entities in Iran, Malaysia, Hong Kong, and Indonesia for allegedly supporting Iran’s unmanned aerial vehicle (UAV) production.
The designations announced in mid-December are striking both in their scope and specificity, as the US has continued to demonstrate its willingness to go after networks that include companies in friendly countries while focusing on disrupting specific industries. Every time these networks and, crucially, the individual owners and managers of these companies, are exposed, they lose their ability to do business in the West and these networks must be reconstituted, requiring time and money and slowing down the war machine. Critics of sanctions portray it as ‘whack-a-mole,’ but finding new moles is also costly for the Russian war effort. Notably, the latest sanctions identified a significant Russian defense asset for making propellant, Perm Powder Plant, along with several cartridge plants. While sectoral sanctions already covered these entities in principle, naming all the key players in the supply chain makes it harder over time for companies to hide behind intermediaries. It also ensures corporate due diligence processes cannot be overlooked. Going after their management and private shareholders, where relevant, is an important next step that helps keep them off the market.
EU Adopts ‘No Russia’ Rules in New Sanctions Package
On December 18, the European Council adopted its 12th package of sanctions against Russia. As always, the EU’s process for developing and imposing sanctions is a much more public spectacle than the US one. Because key elements of EU sanctions emerge through a process of back-room negotiations, tidbits will show up in the press as one side or another in an issue tries to rally their cause. An interesting example this time around, covered in our previous newsletter, was anonymous sources in Brussels pushing back against a proposed ‘No Russia’ clause. Even for careful sanctions watchers, this proposal only first appeared in public discourse at the end of November amid the hand-wringing about it.
Not addressed in early coverage is the question of what exactly the clause is. In brief, it requires that EU exporters include prohibitions in contracts to prevent sensitive goods and technology from being re-exported to Russia from third countries. According to the European Council, this includes “prohibited items used in Russian military systems found on the battlefield in Ukraine or critical to the development, production or use of those Russian military systems, as well as aviation goods and weapons.” This approach recognizes that dual-use goods are continuing to make their way to Russia via Central Asia (See In-Depth story, above) and China. How exactly this will work will (hopefully) be spelled out in the coming weeks. The package, like the latest US designations, also went after procurement networks, including facilitators in third countries, and addresses the issue of parallel importation. Of course, how it is enforced in practice by member governments remains to be seen.
Meanwhile, measures in the latest sanctions package aimed at reducing Russia’s export income include the adoption of a G7 initiative to ban the direct or indirect import, purchase, or transfer of diamonds from Russia, to be phased in from March 2024. Measures to enforce the G7 oil price cap include greater information sharing and notification about the sale of tankers to any third country, amid reported sales of Greek tankers to the so-called shadow fleet carrying oil for sale above the price cap. Finally, the council said the sanctions package “extends the wind-down periods for the import of specific steel products.” This appears to be a reference to requests from Belgium and Czechia to continue to import Russian slabs for local re-rolling companies, an important story we plan to cover separately in a forthcoming newsletter as more details become available.
UK to Launch Sanctions Implementation Unit
In the second week of December, the UK government announced the creation of a new Office of Trade Sanctions Implementation (OTSI) to be set up in early 2024 as and when the legislative structure is put in place. The aim of the body, under the Department of Industry and Trade, is to “crackdown on companies dodging Russian sanctions.” OTSI will be responsible for the civil enforcement of trade sanctions while referring offenders to enforcement bodies for potential criminal prosecutions. When making the announcement, Industry and Economic Security Minister Nusrat Ghani pointed to a 94% reduction in goods imports from Russia since the beginning of the war. The minister underlined that OTSI’s mission will be “clamping down on sanctions evaders and starving Russia of the technologies and revenues it needs to continue its illegal invasion.” As noted in previous newsletters, the UK government has arguably gone further than the EU and the US in many areas in creating specific bodies and agencies to tackle sanctions enforcement. With sufficient resources, OTSI can focus on procurement networks and target evaders. At the same time, most observers believe that the bodies needed for criminal enforcement, especially of complex financial cases, remain woefully understaffed.
Oil Price Cap in Focus
With the anniversary in early December of the G7 price cap of $60 per barrel, the Centre for Research on Energy and Clean Air (CREA) released a report suggesting the cap had cost Russia around $34 billion. A good result? Not according to CREA or most observers, who note this 14% reduction was achieved early on. Russia, supported by its shadow fleet of tankers and the willingness of countries like India to refine Russian oil and sell it back to the same countries enforcing the cap, has found and exploited loopholes. For its part, the US Treasury points out that the cap has “helped reduce Russia’s export earnings by forcing sizeable discounts on Russian exporters in market segments where the EU embargo lowered demand.” As noted above, Russia has been expanding its shadow fleet of tankers by buying tankers, leading the EU to make sales of tankers by member countries subject to mandatory reporting. The US has tightened up paperwork requirements for tankers, a key vulnerability for the shadow fleet as many still rely on insurers based in the US and other allied countries. The most recent US and EU sanctions have begun to take on the cap, and more measures are expected. The focus on insurance underscores that even in the gray market (where most oil tankers avoiding the price cap operate), Russia again faces challenges by having to use Western tools and institutions that can be weaponized against it. The alternative is the black market of aging vessels that spoof their locations and are likely not insured. The world was reminded of the problems these vessels present when a Gabon-flagged tanker exploded back in May off the coast of Malaysia. As the US and other G7 countries focus on tightening the price cap, existing levers may lend solutions. Potentially uninsured and environmentally unsound tankers must pass through the exclusive economic zones of G7 nations and their allies. Legal, safety, and environmental compliance inspections could turn bottlenecks like Gibraltar and the Danish Straits into choke points where fines are levied and delays disrupt Russian oil delivery schedules, thus reducing the prices that can be obtained.
Raiffeisen Off the Blacklist
A key step in adopting the EU’s 12th sanctions package was – reportedly – the temporary removal of Austria’s Raiffeisen Bank International (RBI) from a Ukrainian government ‘blacklist’ called the International Sponsors of War. Notably, the listing on the website is blurred out with the text: “The status is SUSPENDED for the period of bilateral consultations involving representatives of the European Commission.” The listing had no legal authority, as far as can be determined, as it is separate from the Ukrainian government’s own sanctions list. It appears the Ukrainian government made the concession to prevent Austria from blocking the sanctions package over the issue (as suggested in several news reports). It is also suggested that RBI’s potential plans to sell its Russia business may have also played a factor. For Austria, the episode is reminiscent of a similar move by Hungary to take its OTP bank off the list. The dispute demonstrates that Ukraine’s black and sanctions lists have enough moral weight to make them relevant. At the same time, US readers should take note that the Ukrainian list includes seven American companies, including PepsiCo, an ignominious score second only to China’s.
Japan Expands Russia Sanctions
As the only Asian member of the G7, Japan announced in mid-December that it was joining that body’s ban on the purchase of Russian diamonds for non-industrial use. Japan also added 57 entities to its sanctions list, including organizations from the UAE, Syria, Uzbekistan and Armenia. This brings the total number of entities subject to Ukraine-war-related sanctions to 494. Japan’s Prime Minister Fumio Kishida has been an outspoken supporter of Ukraine in the region, although his domestic political fortunes appear to be fading amid a 26% approval rating and ongoing fundraising scandal that has led to the sacking of four ministers. Asia remains an important front for the Ukraine war – North Korea and China are key suppliers of munitions and technology, respectively to Russia, while South Korea (via the US) reportedly supplies more artillery shells to Ukraine than all European countries combined. For Japan, South Korea and the Philippines, a Russian military victory in Ukraine could have dire consequences for China’s regional rivals – not least by emboldening China to act against Taiwan specifically and the South China Sea more generally.
