This secret Russian strategy to acquire precision manufacturing machines, revealed by researchers, is an attempt to circumvent increasingly stringent Western sanctions and export controls aimed at crippling weapons manufacturing, according to a report on the Financial Times, seen by Sky News Arabia.
These operations are run through networks of shadowy companies, exploiting stocks of high-quality, used Western manufacturing machinery that remain in China decades after they were sold to local factories.
The Center for Advanced Defense Studies (C4ADS), a Washington-based think tank that identified this shadow trade, revealed that the complex supply arrangements suggest that Moscow’s claims about producing high-precision tools within Russia may be “exaggerated.”
Russian arms manufacturers are “making an increased effort to expand their production capabilities with anything they can get their hands on,” said Allen Maggard, an analyst at C4ADS who oversaw the report.
One procurement network, identified by C4ADS and verified by the Financial Times, centers around a Moscow-based company called AMG, a Russian military supplier that the US placed under sanctions last year.
Since Russia’s war against Ukraine in 2022, AMG has increased imports of computer numerical control (CNC) tools made by Tsugami, a high-end Japanese machine tool manufacturer based in Tokyo.
Computer numerical control (CNC) tools are essential for the defense industries because they allow for high-precision, high-speed automated processing and cutting of metal.
Public filings show that AMG has contracts to acquire manufacturing tools for Kometa, a Russian company that develops weapons systems, including ballistic missile defense systems, jet weapons and missile systems, according to the sanctions listings.
From Japan to China…a suspicious supply route
Tsugami machines have been seen in use at several Russian military installations. Customs documents show that AMG purchased approximately $600,000 worth of Tsugami equipment in 2021 from an official Japanese supplier.
Purchases after the Ukrainian crisis then increased to $50 million in 2023, with the increase coming entirely from shady brokers.
Shadow brokers
The first supplier is Amegino, a supplier subject to US sanctions, whose website was originally hosted on servers in Russia.
According to the intelligence company Diligencia, its owner is Andrei Mironov, and no other details about Mironov’s background are available.
The second broker is ELE Technology, which deceptively presents itself as “a division of Gray Machinery Company,” an American manufacturing tool distributor.
ELE’s website – which appears to be copied from the real Gray Machinery site – claims to have a warehouse in Illinois and offers transportation services from Chicago Unhammer Airport to its potential customers.
The site claims that Glenn and Jared Gray, two experienced American CNC tool dealers, are on their team.
Detect the scam
But ELE Technology has its real location 7,800 miles away in Shenzhen, China.
Glenn Gray, whose full biography and photo shoot is published on the ELE website, told the Financial Times that he knew nothing about the company.
Website recordings and old advertising materials indicate that ELE is run by a Chinese electronics merchant named Benson Zheng. Zeng did not respond to requests for comment from the Financial Times.
Japanese precision machinery maker Tsugami denies supplying any equipment directly to ELE Technology, which claims on its website to be a US distributor.
Used machines arrive in Russia
Researchers revealed that Russia is resorting to importing decades-old used military manufacturing equipment through a network of Chinese intermediaries. According to experts, this step reveals gaps in the used goods market, as manufacturers usually do not track the destination of their products after sale.
“Russia’s import of these old machines highlights the weakness of oversight in the used goods market,” says analyst Allen Maggard. “Just because this equipment is old does not mean it is incapable of producing simple weapons parts.”
A complex network of intermediaries
Each of the two companies mentioned plays a different role in the Russian equipment procurement process.
Amegino acts as an intermediary, commissioning Chinese suppliers like ELE to ship goods from China to Russia. Documents obtained by the Center for Advanced Defense Studies (C4ADS) reveal cooperation between the two companies, with Amegino commissioning ELE to ship goods worth $2.7 million to Russia in early 2023.
Tsugami’s dependence on the Chinese market
Tsugami has been relying on the Chinese market for about 20 years. It is estimated that there are more than 100,000 Tsugami machines in China, out of 200,000 machines worldwide. These machines became a target for Russia after official Tsugami vendors stopped dealing with them in 2022.
“Before the coronavirus pandemic, Tsugami was trying to capitalize on China’s national strategy to become a major industrial power,” comments an investment security analyst who visited Tsugami’s facilities in China. Tsugami’s sales in China exceeded 60% in 2023.
Challenges bigger than just one company
The problem is not limited to Tsugami machines in China. Customs records show that another Russian company, UMIC, imported equipment and parts for manufacturing machines worth $2.9 million from countries including Israel, Japan, Korea, Germany, Sweden and Switzerland. In all cases, the equipment was shipped from China and purchased in yuan through trading partners based in China.
UMIC has ambiguous ownership
Unlike AMG, UMIC has not been sanctioned by the United States. However, the company’s ownership raises doubts. Yulia Karpova, owner of UMIC, shares the same husband’s surname and phone number as Evgeny Karpov, owner of the sanctioned AMG company.
Yulia Karpova appeared at Russian trade fairs promoting AMG products in joint pavilions between the two companies (AMG-UMIC). She was also photographed in May 2022, after Japan lifted export restrictions, holding AMG brochures showcasing the Tsugami product range that AMG claimed to be able to source.
UMIC and AMG did not respond to requests for comment on the matter.
Japan’s efforts to combat sanctions circumvention
The Japanese Ministry of Commerce announced its cooperation with G7 partners to strengthen measures to address sanctions circumvention. The ministry stated: “While many countries face difficulties in dealing with used goods, Japan is collecting various information, including companies that circumvent sanctions. We will add them to the list of sanctioned entities when needed.”
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