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International companies conducting business in Crimea in spite of sanctions

How are European companies doing business with the Russian partners: do they skirting sanctions or violate them?

International sanctions are not a new concept in the system of international relations, as well as in the world economy. Such a practice is going on for decades. A new stage in the implementation of sanctions against Russia was provoked by Russia's occupation of the Ukrainian Crimea. In connection with Russian armed aggression and the occupation of part of the Donbas, sanctions were imposed by the United States, the EU and many other countries. Ukraine is among them.

The question is…How are European companies doing business with the Russian partners: do they skirting sanctions or violate them? Perhaps, the EU's confrontation with Russia is a conflict of geopolitical and geo-economic interests?

To understand this, we will look at the specifics of Russian-European relations in the sphere of economy:

Firstly, the EU is the largest foreign trade partner of the Russian Federation. Over the past few years, significant amounts of consumer goods and raw materials have come from the EU countries to the Russian Federation. Secondly, Europe was a source of investment for Russia. At the same time, capital flows (if its needed) from Russia to Cyprus and some European countries. After all, Russia is by far the largest supplier of energy, raw materials and semi-finished goods to the EU.

The above-mentioned circumstances allow us to understand the dilemma that EU facing in imposing sanctions. On the one hand, the EU could not ignore Russia's violations of the principles of international relations that ban the change of borders of states without their voluntary consent. Moreover, Russian aggression against Ukraine takes place near the borders of the European Union. And the further escalation of aggression would create a threat of spreading conflict on the territory of the EU-countries.

On the other hand, economic relations with Russia, especially in energy matters, are very important for the European Union. Economic activity of Russian companies depends on their relations with the Russian authorities. Therefore, the economic relations between the EU and Russia are largely dependent on these political relations.

First of all, the essence of EU sanctions was to restrict Russian companies' access to high technology and financial resources owned by European companies. A similar personal sanctions against some Russian citizens prevented them from entering EU territory and arrested their assets in the EU. Maybe, the specified restrictions on access to European technologies, from the very beginning, were less severe than American ones. Moreover, European economic sanctions against Russia almost did not affect the supply of oil and gas to the EU.

Despite the sanctions, the diesel generators MAN (German company) also appeared in the annexed Crimea. The DHL Logistics Company (headquartered in Bonn) continues its operations on the peninsula.

Volkswagen obey the sanctions, aren’t they?

At the end of last year, The Ministry of Temporarily Occupied Territories and IDPs reported on the world-wide automotive brands activity in Crimea. This is mainly Japanese and German companies: Nissan, Toyota, Peugeot, Mitsubishi, Kia Motors, Volkswagen, Mercedes-Benz, Audi, Skoda, Isuzu, Bayerische Motoren Werke AG (BMW), Renault and Lexus.

Companies are doing business with the help of local retailers. In addition, their dealerships provide a full range of services: from the sale of cars and spare parts to the execution of documents. Volkswagen claimed that the company did not violate the sanctions. Is it real?

Automotive Center «Crimea-Autoholding» started retailing Volkswagen in Simferopol in 2001. They call themself "the only official dealer" of the brand in the Crimea, offers a full range of cars in stock or on order. "AC Simferopol" cooperates with Audi. The main activities of the company are sales, warranty and post-warranty service,brand repairs, parts and accessories sales.

Such a car could be purchased not only in dealership. For example, V.I. Vernadsky Crimean Federal University (previously - V.I. Vernadsky Taurida National University) authorities received the Toyota cars, which were bought from «Business Car» company. The co-founder of company is a resident of Toyota Cusse Corporation – Toyota Group.

Now, Crimean officials are riding Toyota and Mercedes-Benz. For the "authorities" of the peninsula, twenty-one cars were purchased since 2017. 15 Japanese Toyota Camry R2 Comfort and four Toyota Camry R6 Exclusive, 2 Mercedes-Benz Tourist 516 with 19 + 1 seats are among them. According to the EU Regulation No.692 / 2014 of 23 June 2014, certain vehicles are banned from importing into the Crimea and Sevastopol - passenger buses, as well as special-purpose vehicles.

Buses supply to peninsula is forbidden. In addition, it is not allowed to import vehicles like concrete mixers, fire trucks and an engine chassis for these vehicles.

«Siemens turbines» case

Siemens AG is the largest (in Europe) international enterprise in the field of electronics, power engineering and machine building. Their turbines were in the Crimea despite sanctions.

Siemens and OJSC Power Machines owns «Siemens Gas Turbine Technologies». German concern holds 65% of the shares. Technopromexport, owned by the State Corporation for Assistance to Development, Production and Export of Advanced Technology Industrial Product Rostec, ordered equipment from a subsidiary of Siemens. Turbines were designed for the project in Taman. In summer, four of them were delivered to the annexed Crimea.

It turned out that Interautomatika AG (Siemens – one of owners) is involved in installing energy turbines on the peninsula.

Siemens initially denied any involvement in the delivery of turbines in the Crimea. Russia stated that new equipment for power plants was produced in Russia. Siemens's own investigation showed that these turbines were illegally moved against the contract. Therefore, the company announced the cessation of cooperation with Russia and the sale of a stake in Interautomatika AG.

However, cooperation with Ukraine company declined. According to Andriy Kobolev (the chairman of Naftogaz), Siemens did not start supplying equipment for Ukraine in order not to forfeit the Russian market.

The European Union imposed new sanctions almost immediately. The list includes high-ranking officials involved in the illegal supply of turbines to Crimea. Interautomatika AG and Technopromexport are also listed in the sanction document. According to the EU, they contribute to the Crimea’s independent energy supply, so undermine the sovereignty of Ukraine.

Siemens sued the Moscow Arbitration Court against Technopromexport and Siemens Gas Turbine Technologies in order to restore reputation. The demands of German company were: to return turbines back to Taman and to stop it’s supply to Crimea.

Siemens also insisted on the arrest of turbines and the prohibition of installation. However, the Russian court refused.

Rostec subsidiary has filed a lawsuit in response. Technopromexport demanded the cancellation of a part of the contract. In their opinion, it contradicts the sovereignty and the Constitution of the Russian Federation. Of course, it is about statements that prohibit the supply of turbines in the Crimea. The aim of document is to avoid violations. The state-owned company also said that they got Siemens equipment from the "secondary market".

Gas equipment should have been manufactured by Siemens Gas Turbine Technologies according to the treaty. However, at one of the meetings, it turned out that Siemens AG manufactured them in Germany and delivered to Russia. Siemens offered a refund for products, but turbines must be returned to supplier. In this case, treaty would be canceled.

The court rejected in Crimean turbines case. Siemens failed to prove that its subsidiary - Siemens Gas Turbine Technologies, was deceived. Now equipment located at the power stations of the Crimea. There are ongoing installation and launch work.

USA also imposed new sanctions due to “turbines case”. In their document Russian company "Power machines" is listed, but Interautomatika AG is not.

In January, Siemens signed a new treaty with the State Corporation for Assistance to Development, Production and Export of Advanced Technology Industrial Product Rostec, despite the court. Partners are going to build a network of clinical and diagnostic laboratories in the regions of Russia.

Because of the precedent of supplying Siemens turbines to Crimea, Germany has urged the EU to extend anti-Russian sanctions.

MAN Engines

In 2017 Russia was building a special emergency boat on Zaliv Shipbuilding yard which located in Kerch. There are only four such ships in RF. Previously, they used the equipment of the Wärtsilä company. Now, Wärtsilä refuses to supply products because of EU sanctions. Subsequently, diesel generators manufactured by MAN are installed on the vessel. MAN Diesel & Turbo have stated that they are less informed about usage of their engines in the Crimea. The company did not cooperate with Zaliv Shipbuilding yard for the last ten years. The representative of the concern assumes that this could be equipment for other vessels. But MAN "can not control and know about it."The company emphasized on following the European export and sanctions legislation.

DHL

DHL is a German corporation that speaks loud about providing its services in Crimea. The DHL logistics company continues its activities on the peninsula. They provide mail and parcels to "service points" in Simferopol, Sevastopol and Kerch.

DHL is a leader in express delivery and logistics. It’s headquartered in Bonn, and affiliates are in 220 countries and more. DHL is included in Deutsche Post DHL group. They hasn’t denied providing services in the Crimea. Company also said that there are no law violation in their behavior. 

The press service of the company noted that due to the difficult political situation in the Crimea, DHL serves the Crimeans in a special order. The type of services and organizations involved are special.

"Deutsche Post does not offer delivery service to the Crimea. DHL Express operates in accordance with the applicable legal framework, offering limited delivery services in the Crimea," the company said.

However, the Main SSU Office in the Autonomous Republic of Crimea has begun DHL Express scrutinizing. An investigation is being conducted on the possible operation of this company in Crimea.

Conclusion

Despite the annexation of the Crimea and sanctions, some foreign corporations continue to operate on the peninsula. EU-US sanctions prohibit investment in Crimea, as well as import or export of certain goods, services and technologies. The European Union imposes restrictions on transport, energy, telecommunications and tourism. Such measures are part of the international policy of non-recognition of the annexation of the peninsula.

Most foreign corporations in Crimea consider their actions legal. Companies use Crimean and Russian intermediaries to circumvent sanctions and conduct legitimate business.

From the very beginning of anti-Russian economic sanctions, these sanctions were presented as a means of peaceful international pressure on Russia in order to enforce measures of restoring Ukraine's sovereignty. Despite the outright Russian aggression against Ukraine, the leading Western states were not ready to open an armed conflict with Russia. On the other hand, Russia wasn’t ready for an armed clash with the West. That is why this deep geopolitical conflict between Russia and the countries of the West has become an economic confrontation.

Both legal and natural persons are subjects of international economic sanctions. Their sensitivity to sanctions, as well as the mechanism of sanctions, are somewhat different. But the purpose of the application of sanctions is one in both cases - to achieve the demands.

There are grounds to believe that the introduction of international sanctions, as well as the desire to restore Ukraine's sovereignty over its territory, is due to the aspirations of developed countries to strengthen their geopolitical and geo-economic positions. Moreover, it’s a chance to avoid open military conflicts with Russia.

Russia conducts a hybrid war with the US and the EU, trying to get the geopolitical status of the USSR. This war takes place in a much milder because of weak interest in armed conflict.

All of the above suggests that the introduction of international sanctions should be seen not only as one of the new tools of the hybrid war, but as a new phenomenon that can become a common attribute of international economic relations. This tendency of international economic and political relations should be taken into account for the more effective development of the national economy of Ukraine.

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