This is embarrassing: Russians have got their hands on Starlink and it is helping them to improve their position on the battlefield.

In 2022, Starlink was initially provided free of charge to Ukrainian forces following Russia's invasion of the country and made a huge difference. They could easily communicate security across the whole territory, whereas Russia had to rely on unsecure radio transmissions or spotty mobile data coverage.

Musk has been vacillating on helping Ukraine. He initially gave the Armed Forces of Ukraine (AFU) free use of Starlink, but later cut them off and demanded they pay until the Pentagon stepped in and covered the $14.1mn bill for a six-month contract.

Apparently, Russia is sourcing the Starlink units via partners in friendly countries that send them on to Russia with working contracts with no problem. You would have thought that Starlink would have disabled the units which they can obviously geolocate to being used on Russian front lines, but no didn’t happen. Musk did however, turn off Chechen President Ramzan Kadyrov’s Cybertruck remotely after he welded a machine gun to the roof and drove it around Grozny, filming the whole thing on social media.

This shoddy story highlights one of the biggest problems with the sanctions regime: Western companies are not on board with them. While many multinationals very publicly left Moscow in the first months of the war, the shops are full of their products again. The big names had to leave for reputational risk reasons, but once they had done so, their offices in places like Istanbul went into overdrive and they reacted to the trader routes that were pioneered in the 1990s to send all the goods to Moscow, etc. via intermediaries.

And most of the foreign companies working in Russia have not left at all. As bne IntelliNews reports, only 9% of Western companies have actually fully exited. Companies such as the Austrian Raiffeisenbank or the French supermarket chain Auchan have flatly refused to leave their billions of dollar-plus businesses behind. Remember that with 150mn people, Russia is by far the largest consumer market in Europe and as bne IntelliNews wrote recently, on a PPP (purchase power parity) basis incomes are on a par with EU levels. It’s simply too much money to walk away from.

That’s retail, but the story is the same in things like technology. The 90s traders have set up daisy chains of intermediary trading partners. A US chipmaker can sell a banned chip to a company in the UAE or Turkey legally, but that chip then wends its way through a bunch of waystations before eventually arriving in Moscow. One EU report estimated that a typical daisy chain has 40 stops on it. The Western chipmaker can quite reasonably claim that it has no idea where its products will end up, as how can they check? Once you sell a chip it’s no longer yours and if the new owner sells it that is their right.

In Europe’s case, the trade is ever more egregious. European companies simply export their goods to Kyrgyzstan or Belarus and they are then shipped on to Russia. The tiny mountainous Kyrgyz Republic has seen its imports of high-end European goods jump by thousands of per cent in the last two years, creating massive windfall that has seen government revenues double and is fuelling over 8% a year GDP growth. Poland is the only EU country where this trade has not exploded. As for Belarus, no one is even pretending it’s not a scam. The German and French makers of luxury cars are lobbying the EU to prevent sanctions on exports of their top of the range cars to Belarus, which clearly end up in Russia, because it would “hurt their businesses” at a time when sales in their home markets are falling. Carmakers are big employers and famously Volkswagen has recently announced it may close German plants for the first time in its 87-year history. Carmakers are big employers… And remember that thing about Russia being the biggest market on the Continent? So far, no one in Brussels has tried to close this loophole, despite fourteen rounds of sanctions. While European Commission President Ursula von der Leyen and German Foreign Minister Annalena Baerbock et al are fully committed to killing the Russian economy, the majority of their companies are simply not interested.

In the last round of EU sanctions new rules were introduced that demand the makers of sanctioned goods should be made responsible for knowing where the ultimate beneficial owner is located and not sell to Russians, but this will be almost impossible to enforce.

When you get beyond the EU it’s even more obvious. China is totally ignoring the sanctions, but we have a story on the site today about how Russia is now tapping the burgeoning Indian tech sector, much to New Delhi’s relief as Russia has built up a huge pile of rupees from the oil trade that it can’t spend, and India’s tech sector is booming. “Global” sanctions on Russia are actually a Global North thing, and actually a Northwest Europe + US/Canada thing. The majority of the rest of the world is not participating.

Some at Kyiv School of Economics (KSE) and Peterson Institute for International Economics (PIIE) have argued that actually these kinds of KYC checks are possible as banks have to do this sort of work – the point of the compliance departments, which do regularly kill deals if they smell a fish. However, banks have huge resources, there is a mass of legislation and regulations to track money and as most of it goes through SWIFT it's not that hard to do. None of this exists for the trade in physical goods and no one is interested in setting it up. Businesspeople have no interest in principles. They only want to make profits as long as they can do it legally.

The golden rule with sanctions, especially on a country as big and deeply integrated as Russia, is they can only be made to work if you as the sanctioned are willing to take significant pain yourself. It would be possible to cut Russia’s oil exports down to next to nothing by sanctioning all 400 of the shadow fleet ships and the smart sanctions introduced in December showed that such sanctions can be made to work. But that would cut supplies to the market and oil prices would spike. So it will never be done and only a token number of ships will ever be sanctioned.

It’s a fundamental contradiction at the heart of sanctions: hit Russian business as hard as you can, as long as the impact on your own business is minimal. And it doesn’t work like that, as the boomerang effect increasingly hurts Europe, while Russia has successfully transferred large amounts of its business to new partners in the Global South.