Sanctions and tax evasion in Russia/China Copper Trade Scheme
A Reuters report this month (April 2024) revealed that Russia and China are engaged in a scheme to trade new copper disguised as scrap to evade taxes and western sanctions.
Russian copper producer RCC, which is subject to various western sanctions, is working with Chinese firms to disguise new copper wire rod as second-hand by sending it to Chinese recycling companies. These firms then make the copper indistinguishable from other recycled metals.
Although there are no legal obstacles preventing Chinese companies from buying metal from Russian, the potential for association with sanctioned Russian firms - even if it is indirect - is a deterrence for businesses in the UK, US or other countries.
Recent actions by the UK and US have banned Russian access to London and Chicago metals markets, potentially driving more trade to Shanghai, the third-largest metals exchange.
Russia's exclusion from these metal exchanges will certainly affect trade, but the risk lies in the fact that it will not stop it - as Shanghai, the third-largest metals exchange, is likely to not only continue but even experience a surge in trade.
This is only an example of the many types of evasion schemes that need to be considered when companies look at their sanctions risks - meaning that in their KYC and due diligence, a review of items like the origin of goods - for example, copper wire rod - should not just be one-time but rather, ongoing on a regular basis.
