By Sara Gezdari
Britain has spent the past four years rightly presenting sanctions as one of the most important economic tools available to support Ukraine and constrain Russia’s war machine. The principle is straightforward: if sanctioned Russian entities lose access to Western capital and services, their ability to fund aggression is diminished.
The challenge, however, is that modern finance is rarely straightforward.
Recent reporting by The Financial Times and The Telegraph has raised important questions about a proposed transaction involving Eurasian Resources Group (ERG), a mining giant with significant historic financial relationships with Russia’s sanctioned state banks, VTB and Sberbank. According to reports, Glencore has offered an $800 million pre-payment facility to support Kazakh businessman Shakhmurat Mutalip’s acquisition of a substantial stake in the company.
There is no suggestion that Glencore has acted unlawfully. Nor is there evidence that sanctions have been breached. Yet that is not really the point.
The real question is whether Western sanctions regimes are keeping pace with the increasingly complex financial structures through which sanctioned entities could potentially derive economic benefit.
Parliament has already started asking precisely that question.
Lord Mott recently tabled parliamentary questions seeking clarification on what steps the Government is taking to ensure that any investment into ERG does not benefit sanctioned Russian entities. Given ERG’s reported debt exposure to VTB and previous restructuring arrangements involving both VTB and Sberbank, the concern is understandable.
After all, sanctions are intended to change economic outcomes, not simply regulate direct transactions.
A sanctions regime that prevents a British company from transferring funds directly to a sanctioned Russian bank but cannot determine whether fresh capital entering a heavily indebted borrower ultimately improves that bank’s position, is a regime that risks focusing on form rather than substance.
This is not a criticism of any individual company. Indeed, I would again want to emphasise that the reporting has highlighted no evidence that any illegality has taken place. But this is my point – it is a question of policy design.
Financial markets evolve quickly. Capital is fungible. Liquidity flows through financial systems. The economic reality is that sanctioned institutions could potentially benefit from improved balance sheets, debt repayments, refinancing activity, enhanced collateral positions, or strengthened counterparties, without ever appearing as the named recipient of a transaction.
That challenge is becoming increasingly important as Russia adapts to years of Western sanctions.
Recent Henry Jackson Society research has highlighted how indirect financial relationships, distressed debt markets, and complex financing structures can undermine the intended impact of sanctions. The objective of sanctions should not simply be to prohibit obvious transactions. It should be to deny sanctioned actors meaningful economic benefit.
Those are not always the same thing.
This debate arrives at an awkward moment for the Government. Ministers have already faced criticism over recent licensing decisions relating to fuel products derived from Russian crude oil. Whatever the merits of those decisions, they have reinforced a broader perception that sanctions enforcement is becoming more complicated, less transparent, and increasingly difficult for the public to understand.
Credibility matters.
If Britain wants sanctions to remain an effective instrument of economic statecraft, policymakers must be willing to examine not only whether sanctions are being complied with, but whether they are achieving their intended purpose.
The reported ERG transaction may ultimately prove entirely consistent with both the letter and spirit of UK sanctions policy. Equally, it may expose questions that current rules are not fully equipped to answer. Either way, Parliament is right to ask them.
Sanctions do not fail only when they are broken. They fail when the rules no longer reflect the realities of finance.
That possibility deserves far more attention than it is currently receiving.
