Exclusive: How Russia Evades Sanctions via Syrian Loan Schemes

New Lines has obtained documents showing two loans to the Assad regime totaling $1 billion for supplies and largely designed to benefit oligarchs sanctioned by the U.S. and EU. But all is not well in Damascus

Exclusive: How Russia Evades Sanctions via Syrian Loan Schemes
Russian billionaire Yevgeny Prigozhin is benefiting from his country’s loan deals with Syria / Mikhail Svetlov / Getty Images

The Russian Federation extended two loans totaling $1 billion to Syria with the condition that the money be used exclusively for payment to specific Russian companies during a six-month window, with a penalty on any unused funds thereafter, New Lines has learned from a leaked tranche of documents.

The Russian companies listed in the agreement include those belonging to oligarchs Gennady Timchenko and Yevgeny Prigozhin, who have been sanctioned by the U.S. and EU for their role in facilitating President Vladimir Putin’s war in Ukraine. Prigozhin’s mercenary army, the Wagner Group, has also been implicated in gross human rights abuses and crimes against humanity in Syria including the torture and mutilation of a Syrian army deserter.

According to the documents New Lines has examined, companies controlled by Timchenko and Prigozhin stand to gain substantially from the loans, suggesting that they may have been designed from the Russian side as a scheme for sanctions evasion and may have already been used to that effect.

One agreement, which was signed in Moscow on Dec. 2, 2020, includes an export loan in the amount of $700 million, with the “Russian share being 100% of the total value of materials supplied and services provided,” the terms stipulate, adding that the entirety of the amount had to be used by June 30, 2021. A penalty of 1% was to be levied on all unused portions of the loan thereafter, to be “paid in euro or ruble … as compensation for expenses incurred by the Russian side.”

This agreement, which names the authorized parties as Syria’s Ministry of Finance, Russia’s Ministry of Finance, the Russian Ministry of Economic Development and the Federal Service for Military-Technical Cooperation, asserts: “Both sides shall take all necessary means to guarantee the secrecy of the information and correspondence associated with the agreement.”

Speaking to New Lines on condition of anonymity, the source who provided access to these documents said that the Syrian side “has been unhappy with this agreement because of its unfavorable terms” and that there has been “a sense of humiliation on the Syrian side and frustration over the fact that Russian goods and services are not being delivered as promised, and complaints about the delays have gone ignored.” The Kremlin, the source added, has engaged in needless bureaucratic foot-dragging, last-minute renegotiation of terms and price-gouging, and has generally treated Damascus as an imperial power might a lesser colony.

“None of that should surprise anyone,” Col. Joel Rayburn, the former U.S. deputy envoy to Syria, told New Lines. “Russians long ago began treating Syria as a theater from which to extract revenues, not expend them. These unfavorable loans are entirely in keeping with that approach. The Russian Ministry of Defense adopts the same method, with Russian generals acquiring property and cash each time they rotate into Syria on assignment. And there’s nothing Assad can do about it — the military weakness of his regime makes him entirely dependent on Russian support.”

The combination of international sanctions, drought, a devalued currency, dwindled foreign reserves and 11 years of war have left Syria unable to procure basic commodities like food stuffs and fuel from the international market. The country has relied on oil imports from Iran and wheat procurement from Russia with little or no other options to meet local demand. This has left “the Syrian side frustrated and humiliated” in its dealings with Russia under this agreement, according to the source, who added that “the Russians kept on making amendments to the agreement up until the last minute when the Syrian delegation was already on their way to Moscow to sign it, as well as its implementation.”

Among the most essential commodities under the loan agreement are wheat, gasoline and heating oil. Syrians have been enduring dire shortages in sometimes subfreezing temperatures and long lines at the pump.

An ongoing bread crisis threatens to push the country to the brink of starvation, especially with worsening climate conditions and wildfires due to extreme heat and dryness in the summer months. Tens of thousands of acres of wheat alone have burned in these fires over the past couple of years, and last year Syria saw its lowest level of wheat production in 50 years, according to the U.N. Food and Agriculture Organization, further contributing to Syria’s reliance on Russia for bread.

But Russian wheat has not been delivered as promised or in a timely manner, according to the source, who said that “some agreements regarding its procurement were pending for months because a signature from the Russian side was missing, and the Russians took their time to give it.” Also, the quality of the Russian wheat and other goods procured has been subpar compared with international standards.

The Assad regime and its Russian ally have actively contributed to the destruction of the country’s infrastructure through years of aerial bombardment, as well as the torching of wheat fields in some parts of the country at the height of the war when the Assad regime besieged rebel-held areas, which at that time included millions of civilians.

The dossier of leaked documents viewed by New Lines also includes an amendment to this agreement, signed in August 2021, to extend by one year Syria’s deadline to use the export loan and reduce its amount to $555 million. It was not immediately clear whether this amendment had come as a result of Russia’s alleged failure to deliver goods and services as the source claimed.

In addition to wheat and fuel, the leaked dossier included a list of other goods such as sugar, chicken feed, over two dozen pharmaceutical drugs, medical supplies and hardware replacement parts for electric generators.

There is nothing in the agreement that references the pricing of the goods and services offered to Syria by Russia or whether the commodities are priced competitively and/or pegged to international markets. Though the agreement states that all pricing shall be quoted in U.S. dollars, all loan payments are to be made in rubles or euros, according to the official exchange rate set by Russia’s Central Bank.

The source confirmed that “Russia can ask whatever it wants” in terms of prices for the goods and services on offer to Syria through this loan agreement. The source added that in April 2021, for example, the Russian wheat company OZK offered wheat to Syria at $355 per ton after it had agreed with the Syrian council of ministers at a price of $340 per ton. The two sides negotiated and eventually agreed on $350 per ton.

Historic pricing data shows that wheat sold at no more than $257 per ton on the international market that same month.

Similarly, in October 2021, STG Engineering offered wheat to Syria at the price of $319 per ton when the international market price for the month was no more than $283. Another offer was put forth by OZK in January for $317 per ton, when the international price for that month hovered below $290 per ton.

The agreement also includes a finance loan in the amount of $300 million and a list of Russian companies as the exclusive recipients of this loan repayments. There was no further information in writing about the goods and services purchased through these companies, but the confidential source explained: “The purpose of paying is clearing Syria’s debts or commitments to these companies. Some debts are for goods and services provided by Russia in 2004.”

The amendment signed in August 2021 also included changes to the finance loan, lowering the amount to approximately $145 million and adding companies to the list of Russian recipients. They include three Russian state-owned enterprises: Rosoboronexport, the agency for arms imports and exports and dual-use technology; KBP Instrument Design Bureau, specializing in precision munitions and air defense systems; and Vodstroy, which coordinates infrastructure projects for Syria. Rosoboronexport and KBP Instrument Design Bureau have been sanctioned by the U.S. government since 2014; Vodstroy went bankrupt in October 2021.

Two other Russian recipients are also U.S.-sanctioned private entities: Evro Polis LLC and STG Engineering LLC.

Evro Polis is one of the many companies owned by Prigozhin, a close ally of Putin. Known as “Putin’s chef,” he began his career in St. Petersburg as a restaurant owner and later started a catering empire that services the Kremlin and Russian military.

Prigozhin has been accused of being closely involved with the GRU, Russia’s military intelligence, via the Wagner Group, a private military company that has deployed in Ukraine, Syria, Libya and the Central African Republic. According to recent press reports, as many as 1,000 Wagner operatives have been dispatched to Ukraine to help prop up Putin’s flailing military campaign there.

Wagner’s work in Syria was not without remunerative incentive. Damascus promised Evro Polis 25% of all extractive revenue from energy fields recaptured from the Islamic State group. In 2018, a host of Wagner mercenaries partook in a suicidal raid on the U.S.-protected Conoco gas plant in Deir ez-Zor, eastern Syria. All were wiped out by U.S. warplanes and helicopter gunships.

Prigozhin has also bankrolled the Internet Research Agency (IRA), commonly known as a “troll farm,” one of the several arms responsible for Russia’s interference in the 2016 U.S. presidential election and engaged in covert influence operations throughout Europe, using many of the same agents attached to his St. Petersburg “back office.”

He faces criminal charges in the United States, and his companies have been sanctioned by the U.S. and the EU for election interference, disinformation campaigns and his role in the Ukraine war as well as his connections to the Syrian government.

Gavin Wilde, the former director of the National Security Council for Russia, Baltic and Caucasus Affairs in the Trump administration, said the loans show “the nexus between sanctions evasion, pure greed and the continuing trend Prigozhin seems to have mastered for the Kremlin: exploiting — if not outright colonizing — the resources of war-torn nations whose citizens can least afford it.”

STG Engineering is owned by Timchenko, a billionaire and longtime personal friend of Putin. Following the collapse of the Soviet Union, Timchenko moved to Finland to work for Urals Finland Oy, a Russian oil importer, later becoming the company’s CEO. In 2000, alongside Swedish business owner Torbjörn Törnqvist, Timchenko founded the Gunvor Group, which became the world’s largest independent commodities trader. In 2014, anticipating U.S. sanctions over Russia’s annexation of Crimea, Timchenko sold his stake at a substantial undervalue to Törnqvist. In 2007, he established the Volga Group, an investment firm that has a 23% stake in the natural gas company Novatek, Russia’s second-largest gas producer.

Timchenko was sanctioned by the West following Russia’s annexation of Crimea in 2014 and its invasion of Ukraine in 2022.

The amended document offered no further explanation or clarification as to the nature of Syria’s required payments to the listed companies.

Both loans are to be paid back over a period of 10 years on semiannual installments, one on April 15 and another on Oct. 15 of each year, with an interest rate that starts at 1.5% for the first year, 1.75% for the second, 2% for the third and eventually 8% in 2033.

Though the leaked dossier offered no documentation on the amount of money, if any, already received by Russian companies, the source told New Lines that KBP has already received “at least” $25 million, Evro Polis $55 million and STG Engineering $20 million.

“Russian attempts at sanctions evasion are to be expected,” according to Dan Fried, the former U.S. assistant secretary of state for European and Eurasian affairs and an architect of the Obama administration’s sanctions on Russia. “The U.S. has ways of going after sanctions evaders. Given the extent of sanctions already in Syria, the U.S. and EU and U.K. may also want to look at the whole chain of sanctions circumvention that this deal likely reflects and go after any third-country company involved.”

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