Investigative journalists trace luxury car exports from EU to Russia

Investigative reporters at Yle, the Finnish Public Broadcasting Company, have traced luxury cars transported from Finland’s southeast Vaalimaa border crossing to Tomsk, Siberia. The reporters attached trackers to the vehicles at the border after being tipped off about an operation shipping cars through Germany and Finland to Russia. The shipments could violate international sanctions if Russia was the cars’ final destination. 

Although border crossings have decreased since the EU introduced sanctions against Russia, Finnish authorities explain it’s still impossible to inspect every vehicle.

“We can’t inspect every load, because traffic and trade would come to a standstill,” commented the head of the Finnish Customs’ Enforcement Department, Sami Rakshit.

EU sanctions against Russia

Since Russia invaded Ukraine in 2022, the EU has ramped up its sanctions response. Starting that February, several sanctions packages were released directly responding to the invasion, including designations against crucial individuals and sectors, travel restrictions, and export bans.

The fourth package, released on March 15, 2022, targeted Russian elites by sanctioning high-level Kremlin businesspeople and oligarchs and banning EU exports of luxury goods to Russia. Banned goods include: 

• Any type of non-emergency vehicle worth more than €50,000.
• Motorbikes and smaller transportation equipment like chairlifts worth above €5,000.
• Accessories and spare parts for either of the above.
• Musical instruments worth more than €1,500.
• Antiques, works of art, or collectors’ pieces.
• Sports equipment.
• Billiard, bowling, and casino gaming equipment.
• Alcoholic beverages. 

The Yle journalists traced a Lexus RX350 and a BMW X3, which can be worth well over the sanctioned limit for exports. 

To combat the valuation fraud used to evade these sanctions, the EU’s 11th package has also added a requirement to ban exports of vehicles whose internal combustion engines’ cylinder capacity exceed 1,900 cm3, which covers cars typically priced in this range. It also clarified that all hybrid or electric vehicles were banned regardless of power specs.

Illicit trade in luxury vehicles

In March 2023, the New York Times reported on Russian elites’ indirect buying tactics to procure sanctioned items. This included procuring luxury cars and other goods through Dubai and other countries unaffected by the sanctions. Evidence pointed to Russian customers accessing prohibited luxury goods via exports to intermediary countries like Kazakhstan, Armenia, and the United Arab Emirates (UAE).

The EU’s 11th package showed signs of cracking down on these loopholes, introducing restrictions on third-country evasion for certain goods. Firms should anticipate such circumvention crackdowns to continue. 

Sanctions evasion is not the only compliance concern for luxury cars and goods. The European Public Prosecutor’s Office (EPPO) has recently investigated multiple criminal cases involving luxury car trading this year. 

In June, for example, over 2000 police, customs, and tax investigators across Belgium, Germany, Hungary, Italy, the Netherlands, Portugal, and Spain collaborated on an action day related to Investigation Huracán. In response to discovering over 10,000 luxury vehicles traded in a VAT fraud scheme worth €225 million, authorities made arrests, asset seizures, and more than 450 searches. The scheme’s damage was estimated at €38 million or more.

How firms can respond

Individuals and groups pressured by export sanctions often respond by turning to smuggling and other evasion tactics. Firms processing at-risk transactions must exercise careful screening and monitoring to prevent evasion and ensure compliance. 

Firms are encouraged to ensure their current sanctions screening solution has prompt access to the latest sanctions data and to study relevant sanctions evasion red flags. They may also want to revise their existing procedures to ensure they align with other trending financial crime risks related to luxury goods, such as fraud and money laundering.