- Illicit financial flows linked to sanctions evasion have surged to $31 billion – doubling pre-Ukraine war levels – across the Western Balkans and Black Sea region.
- Shell companies, falsified documentation, and rebranding of sanctioned firms are enabling sanctioned items to slip through enforcement gaps.
- Researchers call on the EU, UK, and G7 partners to strengthen export controls, increase transparency in trade data, and apply secondary sanctions where necessary.
A new research paper by the Center for the Study of Democracy, a part of the Governance & Integrity Anti-Corruption Evidence (GI ACE) Programme at the Centre for the Study of Corruption, University of Sussex reveals that illicit financial flows (IFFs) linked to sanctions evasion have surged across the Western Balkans and Black Sea region, creating hidden trade routes that directly sustain Russia’s war in Ukraine.
The report from the GI ACE project “Building Institutional Resilience to Global Illicit Financial Flows as Enablers and Drivers of State Capture” , Shadow Economies: The Rise of Illicit Networks and Alternative Markets in Sanctions Circumvention, shows that IFFs in these regions doubled to $31 billion in 2023, with sanctions on dual-use goods – items with both civilian and military applications, such as drones and missile systems – driving the surge.
A total of 10 countries, including Serbia and Armenia, have emerged as critical hubs for re-exporting sensitive technologies to Russia, exploiting weak enforcement regimes and geopolitical fault lines.
“The swelling of IFFs related to sanction’s evasion show Europe has a lot of unfinished business in actually decoupling from Russian international state-capture networks,” said Ruslan Stefanov, Principal Investigator of the study. “The scale of these IFFs in the Balkans and Black Sea region alone distort the business environment seriously and empower shadow and criminal business interests, which would require sustained long-term law enforcement and development efforts. We expect to see similar effects in emerging markets across the globe, as sanctions evasion IFFs have been silently supported by China too.”
“Russia’s resilience against sanctions is not just about Moscow; it relies on a web of intermediaries in fragile states that launder illicit money and facilitate trade in sanctioned goods,” Professor Elizabeth Dávid-Barrett warns. “These illicit flows not only undermine sanctions but also destabilise economies in Europe’s neighbourhood.”
The study highlights:
- Sanctions loopholes – As direct EU exports of dual-use goods to Russia collapsed by 96% after 2022, exports to nearby countries soared, many of which then sharply increased shipments to Russia.
- Weaponised dependence – Russia continues to exploit energy and trade ties to lock smaller economies into networks of illicit finance.
- Strategic corruption – Shell companies, falsified documentation, and rebranding of sanctioned firms are enabling sanctioned items to slip through enforcement gaps.
Researchers call on the EU, UK, and G7 partners to strengthen export controls, increase transparency in trade data, and apply secondary sanctions where necessary. The study warns that Global South countries face similar IFF vulnerabilities and Western aid effectiveness is undermined, and that without urgent action, illicit networks will continue to hollow out sanctions regimes and provide Russia with critical supplies for its military-industrial complex.
This research forms part of the project Building Institutional Resilience to Global Illicit Financial Flows as Enablers and Drivers of State Capture, funded by GI ACE. Other outputs from this project include a recent policy paper published by the Center for the Study of Democracy, and this blog.