Suspicion over evidence

Following one cargo seized at the border with Russia reveals multiple attempts to circumvent sanctions.

Ivars Bušmanis/Latvijas Avīze

Latvia’s export to Russia has increased only during the two years of the war waged by Russia, compared to the two years before the war. By comparison, other Eastern European countries which we tend to regard as more Russia-friendly (Hungary, the Czech Republic, Slovakia) have seen their exports fall. Moreover, exports to Kazakhstan and Kyrgyzstan have multiplied following the introduction of EU and international sanctions against Russia and Belarus. To understand what is happening and how, we followed one cargo.

Cargoes heading to Russia are being seized

On 7 October 2022, another DAF truck with a Lithuanian registration number plates left a modern customs warehouse Vinges transsphere logistika in Trakai, Lithuania, heading to Kyrgyzstan. The cargo contained various household goods, electrical goods, vehicle spare parts and other small items and was sealed with the Lithuanian customs seal. It was routed through Latvia and, on 8 October, before crossing the Belarusian border at the Pāternieki customs checkpoint, not trusting Lithuanian colleagues, it was nevertheless checked again and impounded. The cargo was seized and criminal proceedings were initiated.

Why? Avoiding speaking about the specific case, Raimonds Zukuls, Deputy Director General for Customs of the State Revenue Service (SRS), Director of the National Customs Board, refers to the EU Customs Code, which states that customs authorities may carry out any customs control they deem necessary. There are no restrictions, even if the German, Lithuanian, French, Italian customs have already checked the cargo. 

“We receive “riffs”, jargon for Risk Information Form (RIF), from the customs authorities of other Member States, say for goods rejected there. If someone wants to cross the border, for example in Estonia, in Koidula, but customs finds that there is something wrong with the documentation or the goods, they report it to their colleagues in other countries. If the cargo comes to us, we are prepared in advance. We act in a similar way. In 2023, we prepared 1221 RIFs, of which 1142 were for sanctioned goods,” explains the Head of Customs.

‘‘One can only guess – either a RIF was received or the customs officers were suspicious of the consignors and consignees”

KLIA Limited Liability Partnership (KLIA), a company registered in Watford, United Kingdom, sent goods to Kyrgyzstan through Russia. Later, it became clear that there was something suspicious. 

The cargoes never reach their destination

Latvia’s export to Russia remained at around EUR 1.1 billion per year two years before and two years after the war. Last year, it slightly decreased to EUR 1.046 billion. By contrast, exports to Kazakhstan jumped from EUR 48 million in 2021 to EUR 120 million the following year, and EUR 115 million last year. Exports to Kyrgyzstan follow a similar trend, rising from EUR 7 million worth of goods the year before the war to EUR 24 million in 2022 and doubling again last year to EUR 54 million. Overall EU exports to these countries have also increased, with three times as much machinery and telecoms equipment being sent to Kazakhstan, for example. 

However, the other Central Asian countries – Tajikistan, Uzbekistan and Turkmenistan – have not experienced such an increase in exports. Why Kazakhstan and Kyrgyzstan? 

“There is a Customs Union of the Eurasian Economic Union, which includes Russia, Belarus, Armenia, Kazakhstan, Kyrgyzstan, and the movement of goods between these countries is done without customs involvement.

 It cannot be ruled out that a cargo sent to Kazakhstan will not end up in Russia after clearance,” says Raimonds Zukuls.

Similarly, Armenia, which is also part of this union and to which goods from Latvia are sent through Russia, is used as a Trojan horse in the Transcaucasus. 

A year ago, the Financial Times reported that random checks on two billion worth of EU exports transiting through Russia found that only half of the goods reached their final consignees, while the rest remained in Russia. The exports include dual-use goods that can be used for both civilian and military purposes. Russia has managed to circumvent the sanctions by falsely declaring destinations on EU customs declarations with the help of agents, intermediaries and suppliers. Has this also been observed from Latvia?

“I cannot rule out the possibility that some of these exports are circumventing sanctions. There is no study to confirm these figures because we cannot track whether the cargo reaches its destination. In seventy of the more difficult cases, where we already had doubts, we sent requests to CIS countries and received forty replies that the cargo had not arrived at its destination,” said Raimonds Zukuls. 

As part of ensuring the monitoring and control of sanctions against Russia and Belarus, Latvian Customs has prevented a total of 2175 shipments from leaving the European Union or entering the European Union from Russia and Belarus in 2023.

The KLIA cargo mentioned at the beginning is only one of those denied, although none of the goods was on the list of sanctioned goods. 

As the State Revenue Service explained to Latvijas Avīze, “if a carrier has correctly and truthfully declared the goods it is carrying, but these goods are subject to sanctions, then such a carrier is denied the opportunity to cross the border, but the goods are not removed.” KLIA had declared the goods correctly and they were not on the sanctions lists. The waybill, signed by Alexander Masalov, listed 156 types of goods, a total of 6407 items worth EUR 560 605. Although they contained 224 drones under the name “quadrocopter”, it should be noted that they were not yet on the sanctions lists at the time of the arrest. So were 750 games consoles, various sensors. However, the goods were removed. Let’s find out why.

Suspicious consignors 

The DAF truck was towing a Schmitz Cargobull SCS 24 semi-trailer with Belarusian registration number. During an inspection of the cargo, customs officers found in the driver’s cab documents that were not presented, stating that the goods in the cargo were to be sold to the Belarusian company RUP Beltamozhservice in Vitebsk. This was later stated by the investigator in the case as the main reason for the arrest. 

Kārlis Petruss, who is authorised to represent KLIA’s interests in Latvia, objected: “A list of goods with an address in Belarus written on a white sheet of paper and not signed by the owner and the consignor does not constitute a document under the Law on Legal Force of Documents.” However, the investigator of the case maintained that “the goods in the consignment were probably intended to be transported to RUP Beltamozhservice in the Republic of Belarus, which is listed as a company subject to restrictive measures in a Regulation adopted by the European Union.”

“Imagine a case where, during an inspection, a list is found filled in, even on a scratch paper, for some destination in Belarus. Clearly, this raises doubts,”

says Raimonds Zukuls. “Then the customs officer goes further, asks questions, looks at the documents in more depth and comes to a conclusion. Sometimes the reaction of the driver is enough for customs officers, even if there are no documents. When asking questions, which I will not reveal at the moment, the tactic is to observe the driver’s reaction, whether he is sure about what and where the cargo is going. This may be the basis for an in-depth investigation.” 

This is what has led the Customs Authority of Latvia to suspect that the documents may have been forged without showing the true consignee of the cargo. Later, it was found that the consignors were also suspicious: the British company KLIA Limited Liability Partnership is owned by two Russian citizens living in Saint Petersburg, Igor Nikanorov and Natalia Kava. 

On 11 October 2022, the Tax and Customs Police of the SRS opened criminal proceedings for alleged attempted violation of EU sanctions. 

So far – sharp-eyed and active. But further actions look hasty and even illegal.

Without completing the investigation, the goods are sold

First, Dzintars Mēteris, Senior Investigator of Kurzeme Investigation Division of the Tax and Customs Police Department Regional Investigation Division of the SRS, who was the driving force in this criminal proceeding, recognised the KLIA goods as physical evidence. The seized goods were placed in sealed packages and deposited in the warehouse of the National Collateral Agency. Only three months passed and on 17 February 2023 the Investigator Dzintars Mēteris decided to hand over the property for disposal. Why?

Kārlis Petruss, Customs Lawyer representing KLIA, explains:

 “At the moment the warehouses of the National Collateral Agency are full of goods. I suspect that this is why the investigators are trying to sell the detained goods before the trial, as was the case with KLIA.

 If the guidelines established by the SRS had been followed, it would have saved public funds spent on storing the goods and human resources during the investigation. Now the process of cargo inspection is more organised.”

In the Daugavpils Court, where KLIA appealed against the investigator’s actions, Dzintars Mēteris cited Section 239 of the Criminal Procedure Law as the basis for his decision that the material evidence, the long-term storage of which is not possible or the long-term storage of which causes losses to the State, according to a decision of the person directing the proceedings, shall be disposed of or destroyed. The storage of the goods causes a loss to the State in the amount of EUR 6.62 per day. 

By the time of the trial, the storage costs had risen to EUR 1500, but this amount is only one-fifth-hundredth of the value of the goods compared with the sale price of EUR 560 600.On 13 March, the investigating judge of the Daugavpils Court, Iveta Kromāne, annulled the decision of the SRS investigator. 

The Court held that the disposal of the goods at such an early stage of the proceedings could neither be considered reasonable nor justified.

What if it turns out during the trial that the cargo was seized illegally? What would be returned to the cargo owner?

Dead end

On 25 January 2023, Investigator Dzintars Mēteris sent a request for legal assistance to Kyrgyzstan. The Criminal Procedure Law stipulates that at the pre-trial stage such requests can be sent only with the signature of the Prosecutor General. The Investigator rushed, but Kyrgyzstan did not know this. On 20 May, U. A. Azyrbolov, an investigator of the Department of Internal Affairs of the October District of Bishkek, questioned Azamat Baysabayev, General Director of Euroneka. 

The consignee of the goods confirmed that a contract had been concluded for the cargo in question and that the goods were intended for distribution in the country. He allegedly met Alexander Masalov and Natalia Kava at an exhibition in Kyrgyzstan in the winter of 2022, where they agreed to cooperate

“Euroneka is waiting for the cargo that has been impounded by Latvian customs.  The goods in question are intended for distribution to contractors.

They have not yet paid for the cargo, as according to the contract the money has to be paid within 60 days after receipt of delivery.

The suspicions were not confirmed or proved. Investigator Dzintars Mēteris was forced to give up and last August decided to “return the material evidence arrested in the criminal proceedings – goods (various household goods, electrical goods, vehicle spare parts and other small items) – to their rightful owner”. Thus, a number of mistakes (failure to comply with procedural rules, attempt to sell the goods) sank in the files of the terminated criminal proceedings. In addition, during the ten months that the shipment was arrested, some of the goods were already subject to the sanctions regime, so KLIA had to reform the new shipment.

“As far as the KLIA case is concerned, it appeared that it was a new case for customs officers – it was not clear how to investigate, request information, collect evidence,” said Kārlis Petruss at the end of the case. “It was only last year that the SRS drew up guidelines and only then that systematic cargo inspection began, with equal treatment of carriers crossing the border.

Unfortunately, our officials are different – some followed the guidelines, some acted on their own.

For example, the guidelines stated that if a violation of certain sanctions was detected for the first time, the cargo would be returned to the owner. In one case, the cargo was returned, in others, criminal proceedings were initiated. This created confusion for operators because they never knew whether the cargo would reach its destination.”

First clumsy court cases

The KLIA cargo is just one of 257 that have been the subject of criminal proceedings. The fate of one cargo should not be used as a basis for judging all others. How have the other criminal proceedings turned out? Only seven court cases under Section 84 of the Criminal Law for Violation of Sanctions Imposed by International Organisations and the Republic of Latvia have been concluded. There are five judgments of conviction under Paragraph one for violation and two under Paragraph two for the same acts, if substantial harm has been caused thereby. 

The first court trial to have resulted in a judgment took place in Daugavpils on 14 April 2023, where Judge Geļena Simoņuka fined a board member of an importing SIA EUR 6200 for attempting to violate EU sanctions.

The wooden railway cross-ties used were listed on the invoice as prefabricated wooden structures for a firewood store. The court found that the contract for the cross-ties was signed before Russia invaded Ukraine, but the sanctions were already in force at the time of delivery, hence the misleading name. This case does not look like a show trial, the decision of which should weaken Russia’s aggressive combat capabilities.

The court cases that have followed have been characterised by the fast-cutting ties of information warfare. In January 2022, the co-owner of one SIA used content obtained from a media company in the Russian Federation under licence from another SIA. This practice was stopped and the owners of both SIAs were fined EUR 25 000 each, according to the anonymised court judgment. 

In February 2023, a person worked as an editor for a Russian state news agency, for which he received 140 hours of community service. In October last year, a person produced material on topics of public interest in the Baltic States, which was ordered by the Russian state news agency and placed on websites financed by the client.

Other court cases also do not point to serious economic sanctions. Last February, a Riga City Court fined a board member of an association EUR 62 000 and confiscated USD 50 000 of the association’s assets for having concluded a contract to transfer football players to Belarus and received USD 50 000. 

What is the “substantial harm” found to be punishable under Section 84, Paragraph two? A company has been receiving gas cylinders and valves from Belarus for a long time, but in 2022 another transfer was blocked by the bank.

The court fined the company’s board member EUR 12 400, collected EUR 24 800, confiscated property worth EUR 9500 and banned the company from doing business with Belarus for a year. 

Another case in which a board member of an SIA took a Bentley Mulsanne Speed worth EUR 112 553 belonging to the company to Russia and gave it to a Russian national. The European Union has made it illegal to transfer luxury goods worth more than EUR 50 000 directly to any natural person in the Russian Federation. The board member of the SIA was fined EUR 62 000 and the value of the Bentley was collected from the SIA. 

Failure to collect evidence

These court cases do not yet demonstrate a systematic and targeted circumvention of sanctions. There is no doubt that various schemes exist, but customs is mostly able to detect them and to detain certain cargoes on suspicion for long periods, but has not yet been able to gather evidence of the existence of schemes. The courts have not yet heard a single case of a violation of sanctions by a group of persons according to a prior agreement ( Section 84, Paragraph three of the Criminal Law). In the third year of the war, this is already impossible. 

Kārlis Petruss, Customs Lawyer, points out that the State Security Service should have jurisdiction to investigate sanctions cases, as it did in Valmiera when investigating a cargo of plywood from Kazakhstan,

but since its units are not located at the state border, the units of the Tax and Customs Department of the SRS are delegated to investigate offences under Section 84 of the Criminal Law at border points. It would probably be easier for customs if exports to Russia were banned altogether, as Raimonds Zukuls, the representative of the SRS, implicitly acknowledges: “Restrictions and bans have been on our agenda in the past, but the scale of what has happened since the outbreak of war cannot be compared. It has changed the daily work of customs. The number one role of customs now is sanctions. Five out of every ten border controls involve sanctions (in 2022 there were even more – seven).” 

A complete ban on trade to Russia and Belarus would put EU economies at risk, so no such decision is expected. In the meantime, suspicious cargoes are being arrested and operators doing business with these high-risk countries will never be sure that the cargo will reach its destination.

“Of course, by imposing sanctions, operators are the losers,”

says Kārlis Petruss. “It is easy to check goods by code to avoid conflict with the authorities. You can check whether your business partners are on the sanctions list. It is easy to get advice. Many operators I know, especially transport companies, are on the verge of ceasing to exist. But it must be understood that we must not allow the development of an aggressor state by our supply of goods. To sum up: there are losses, but that is secondary. The primary thing is to defend the interests of the country.” Yes, he also has no doubt that there are cases where cargoes do not reach their destination. “I check the consignees of the cargoes entrusted to me.”

How sanctions are circumvented

• Prepared double accompanying documents. Each set shows a different destination with different information on the consignee and delivery address, proving that the goods are actually being exported to Russia.

• Changed codes of goods. Inconsistent Combined Nomenclature product codes are used to label the goods.

• Reduced value for luxury goods. It is prohibited to sell, supply, transfer or export luxury goods with a threshold value exceeding a certain amount, e.g. EUR 50 000 for passenger cars.

• Different sanctions regime for Russia and Belarus. There are a number of goods that are sanctioned in Russia but can legally be taken into Belarus. There have been more than 8000 declarations of goods that would not go to Russia because it is not allowed, but everything is legal, compliant, to go into Belarus.

• Backdated contracts. The sanctions packages allow, as an exception, the delivery of goods if the contract was concluded before the date of adoption of the sanctions. 

• Mail. Sanctioned goods (e.g. gold jewellery) in mail.

• Contraband. Goods are hidden in legal cargo. Prohibited goods are hidden in the floor, roof, doors of cars or in declared goods.

• Luggage of individuals. Tend to take small amounts of fuel, alcohol, cigarettes – more than allowed.

Source: Customs of the Republic of Latvia