Why sanctions haven’t hobbled Russia

By Audrey SomnardLex KlerenLaia Ros Switch to French for original article

Two years after the invasion of Ukraine, the Russian economy is doing relatively well despite economic sanctions and the freezing of foreign assets. But these sanctions have their limits in the short term. Here are some explanations.

The thirteenth set of sanctions against Russia was presented by the European Union at the end of February. Western countries have joined forces to bring the Russian economy to its knees. Assets in these countries are frozen, all trade relations with a few rare exceptions are banned, and the sanctions have been tightened over the last two years. Restrictive measures now apply to more than 2,000 individuals and companies (just one year ago, the authorities were applying these restrictions to 1,473 individuals and companies). With this new set of measures, the EU is literally attacking the sinews of war: the companies that can indirectly help Russia to arm itself. Twenty-seven Russian and third-country companies have been added to the list of entities directly supporting Russia's military-industrial complex. The problem is that these sanctions are difficult to implement in practice, as Sandra Birtel, a compliance and regulatory lawyer at Kaufhold & Réveillaud, explains: "The sanctions game is military, diplomatic and also a question of image. The aim is to prove that you are defending a cause, when in fact it is difficult to implement them. In Luxembourg, many Russians had real estate holdings, stakes in companies and so on. There are automatic tools for filtering people who are on these lists, but the processing of these sanctions is very cumbersome. Take the example of Russians who are clients of small family offices. Sanctions are often not implemented immediately because checks take time. All the European directives mean well, but they are often partly unenforceable. This race to impose sanctions has shaken up the Luxembourg financial centre."

Luxembourg is doing its part and continues to monitor the freezing of Russian assets on its territory. At present, the amount of frozen assets varies between 6.0 and 6.2 billion euros, depending on market assessments. This is a little more than two years ago, since in June 2022, the Ministry of Finance counted 4.26 billion euros in assets frozen for belonging to persons or entities targeted by the sanctions. This enabled the then Finance Minister, Yuriko Backes (DP), to state that "our country is playing its full part in the EU's joint response to the Russian invasion of Ukraine". In a written response, MEP Martine Kemp (CSV/EPP) said that "the role of sanctions is to affect Russia's industrial capacities and therefore to cause it to lose crucial revenue. So far, they have caused the Russian economy to contract by 4.9 per cent and inflation to rise by 7.4 per cent. What's more, the military sector has grown from 6 per cent of GDP before the war to 10 per cent after the war." For her, "this is not just a war against Ukraine, but against the entire democratic world and its values."

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