Russia evades sanctions through shared offices: NACO study on microelectronics

Adaptation of the Russian military-industrial complex

The war has demonstrated the rapid transformation of combat technologies, yet the suppliers of components for Russian weapons and the world's sanctions policy remain largely unchanged. Despite Western restrictions, Moscow has successfully adapted: American and European chips and microelectronics are reaching Russian production facilities in large quantities. It is precisely these components that are necessary for the production of jet-powered drones used against the Ukrainian capital.

Olena Trehub, Executive Director of NACO, explains that the key problem lies in the dynamics of the creation of new legal entities. A company can be added to a sanctions list today, but tomorrow a new structure will appear to continue the illegal import.

The "Follow the Address" study

NACO researchers analysed over 180,000 customs declarations regarding the supply of priority microelectronics to Russia. During the work, over 8,000 foreign suppliers and their addresses were identified. The main conclusion: even when companies change their names or register new business entities, their infrastructure — offices, business centres, and corporate service providers — often remains unchanged.

The analysis revealed over 200 addresses associated with companies already under sanctions or export control. These locations were used by more than 450 suppliers.

The case of Shenzhen NuanQin Technology

One of the most striking cases is the company Shenzhen NuanQin Technology. In the market, it positions itself as a manufacturer of "smart sex toys". However, customs records reviewed by NACO document supplies from this structure to Russia of integrated circuits and electric motors, rather than adult goods.

There are also less exotic cases: firms that officially engage in pharmaceuticals or pipe fittings simultaneously appear in electronics supply chains. For the Russian military-industrial complex, this means the ability to quickly replace one supplier with another. For Western manufacturers, this is a risk of losing control over the end-use of products and violating sanctions regulations.

Changing the approach to due diligence

A shared address is not unconditional proof of participation in a network of violators, but it is a critical risk signal that standard checks based on company names miss. In one case, at least 45 companies were registered at a single address, of which only 14 were already under sanctions or export control.

Experts insist: if only names are checked, the enemy will simply create new "clean" shell companies. Address analysis allows seeing the connections between a new structure and businesses that already raise suspicions.

Such due diligence is necessary not only for states but also for Ukrainian and international companies working with microelectronics, equipment, and dual-use goods. It is worth finding out not only the counterparty's name but also its address, office neighbours, previous tenants of the premises, and related legal entities.

Proposals for international coordination

The US has already begun including not only companies but also specific addresses in the Entity List (a list of organisations whose activities contradict the national security or foreign policy interests of the country) that have been repeatedly used to evade export control.

NACO proposes to develop this approach at the international level by creating a joint list of high-risk addresses for the EU, the US, the UK, Japan, and other partners.

Sanctions always lag behind the creation of new companies. Therefore, the focus must change: instead of endlessly adding names to blacklists, it is necessary to identify the infrastructure that allows these names to be constantly changed. For business, the conclusion is obvious: the absence of a company in a sanctions register does not guarantee safety. Sometimes the most important information about a counterparty is provided not by its name, but by its address.