Kremlin spokesperson Dmitry Peskov has called sanctions on Russia "illegal".
For years, Artem Uss had appeared in Russian media as the owner of fancy real estate, luxury cars and Italian hotels. Now US officials allege he's at the center of a suspected secret supply chain that prosecutors say used American technology to support President Vladimir Putin's war in Ukraine.
The son of a Siberian governor was arrested last year on charges that he and his associates defrauded the US and its companies and also violated sanctions by selling sensitive technologies from the US to Russia via intermediaries in non-sanctioned countries. He's the most politically connected Russian to be indicted by the US as Washington races to choke off Moscow's access to chips used in weapons systems. Uss has denied any wrongdoing and is now in the midst of an extradition battle in Milan.
Court documents from the Uss case and others like it show how Russia allegedly built a secret pipeline for years before the war to ensure the supply of semiconductors to the country despite US controls. Those well-honed tactics are now helping Russian operators rebuild dismantled networks and deceive publicly listed US tech companies, according to customs data, indictments and people familiar with the matter, who weren't authorized to speak to the media.
American prosecutors haven't identified the semiconductor manufacturers who may have sold to Uss's team unwittingly, and he is now under house arrest in Milan.
Even so, US and EU officials say that Russia is still able to get chips and technology for military use through other networks. Customs data analyzed by the British think tank Royal United Services Institute and seen by Bloomberg also show that semiconductors made by large companies including Analog Devices Inc., Texas Instruments Inc., and Microchip Technology Inc. have been getting to Russia via third-party firms in other parts of the world for months after the war started. The companies say they follow the law, don't sell to Russia and they haven't authorized the sale of their products there.
"We should be assuming that much of our sensitive technologies are making their way into the wrong hands," said Nazak Nikakhtar, a partner and chair of the national security practice at Washington-based law firm Wiley Rein LLP, who served as a senior official at the US Department of Commerce. "The third-party intermediary problem is a fairly easy and significant loophole."
Uss and his associates allegedly operated before and after the invasion, according to a US indictment. Prosecutors say they set up small shell companies in Europe, the Middle East and Asia - essentially Trojan horses to convince chip-makers in California, Pennsylvania and New York that they were selling to non-sanctioned jurisdictions.
They fabricated certificates that falsified the end user, the charges allege. One front company they set up in Malaysia had several addresses, but only one had a visible sign and even that was located in an empty room in a strip mall, the prosecutors allege. The items were ultimately sent to customers in Russia, including US-sanctioned defense contractors, the indictment says.
The same indictment also accuses Uss's team of simultaneously profiting by selling sanctioned Venezuelan oil. The Russian defendants are also charged with defrauding US banks.
Uss, 40, says he didn't do anything wrong, isn't responsible for anything his associates may have allegedly done, and argues that he shouldn't be extradited because he risks being treated unfairly in the US, people familiar with his legal defense say, declining to be named because they weren't authorized to speak to the media. Dressed in a dark gray suit as he left his closed door hearing in Milan in February, he declined to comment. His lawyers also declined to answer questions.
The US has had restrictions on Russian purchases of military-related technology for years, but it's been sharply accelerating those controls since Putin invaded Ukraine in February last year. Kremlin spokesman Dmitry Peskov said that Russia doesn't consider the restrictions placed by US "legal from the point of view of international law."
"Sanctions are what has been decided on by the UN Security Council - these are nothing more than unilateral, illegal restrictions," Peskov said.
Semiconductors are becoming increasingly important to the outcome of the war. Russia has been ramping up its push to get chips, suggesting its stockpiles aren't deep enough and Moscow's efforts are unlikely to have resolved shortages, said Maria Shagina, a sanctions expert at the London-based International Institute for Strategic Studies.
Ukraine's government has publicly urged tech giants including Qualcomm Inc. and Broadcom Inc. to stop making microchips that it says support Russia's Glonass satellite navigation system. Representatives at Qualcomm and Broadcom declined to comment.
Analog Devices in a statement said that any post-sanctions shipments into Russia, the Russian-occupied regions of Ukraine and Belarus is a direct violation of its policies "and the result of an unauthorized resale or diversion of ADI products." The company has ramped up monitoring of gray market activities, it said.
Microchip also said in a statement that it doesn't sell to sanctioned regions and works on screening customers.
"We do not support or condone the use of our products in applications they weren't designed for," Texas Instruments said in a statement, adding that it doesn't sell into Russia or Belarus.
In addition to Uss, the US charged six other individuals in October, including Yury Orekhov, whom it identified as a former employee at a Russian aluminum firm. Lawyers for Orekhov didn't respond to a request for comment.
The team "engaged in a variety of activities in violation of US laws and regulations sanctions, including the unlawful export of millions of US dollars in military and sensitive dual-use technologies from the United States to Russia, and the use of the US financial system to smuggle millions of barrels of embargoed oil from Venezuela," the charges said.
In a press release, the US Attorney's office for the Eastern District of New York, which filed the charges, said this alleged network "schemed to procure sophisticated technology in direct support of a floundering Russian Federation military industrial complex."
They used fake purchase orders, business records and shipping documents to fool American chipmakers, the court documents allege. All that helped mask the end user: The Russian military, according to prosecutors. Illicit deliveries continued after Russia's Feb. 24, 2022 attack on Ukraine, at least until the end of March that year, prosecutors said. Components made by several of the US companies were found in seized Russian weapons platforms in Ukraine, the charges said.
At other times, Uss's associates falsely told US chipmakers that their products were headed to Roscosmos, the Russian space program that still has cooperative agreements with NASA, according to the charges. A spokesperson at NASA declined to comment.
Orekhov shuttled between Germany and Dubai, where he had a property on the pricey artificial island of Palm Jumeirah, according to US prosecutors. He relied on companies based in the United Arab Emirates, Germany, Russia and Malaysia, the indictment said.
Both Uss and Orekhov got involved in the scheme after the US blacklisted another co-defendant Timofey Telegin and his defense contracting firm in 2018, court documents allege. Telegin had come under scrutiny after two of his employees were detained in the US on charges of trying to illegally acquire sensitive military technology two years earlier, according to court documents. No lawyers for Telegin have filed public notices of appearances and he couldn't be reached for comment about the case.
Russia is constantly seeking new loopholes as US pressure builds, according to Adam Smith, a former top Treasury official who worked on Russia sanctions policy and is now at the law firm Gibson Dunn. "There are perhaps two hundred other jurisdictions they could potentially leverage."
The analysis by the Royal United Services Institute, or RUSI, showed that nearly all the American semiconductors that reached Russia in recent customs data were bought by companies in China and eventually reached the manufacturer of Russia's Orlan-10 drones.
Biden officials have raised concerns about Russia's access to chips with other countries, including China and the UAE, according to people with knowledge of the conversations, who weren't authorized to speak to the media. A spokesperson at the Department of Commerce said the US will continue to communicate with other countries about its controls, monitor developments and "act as appropriate to deny Russia the items it needs to sustain its war machine."
Unlike the EU and US, China and the UAE don't have sanctions on Russia.
"The UAE adheres to, and strictly enforces, international laws and UN mandated sanctions, alongside agreements established with international partners, including the US," a UAE official said in a statement to Bloomberg. The Middle Eastern country says it has systems in place to monitor illicit fund flows and has put in sophisticated customs systems to monitor products, including sensitive technologies.
China's foreign ministry said in a statement that it isn't aware of the details surrounding the chips issue and its stance is to promote peace and talks in Ukraine. The US has frequently spread false information on the subject of China's relations with Russia, it said.
US and EU officials have said that Russia also continues to access foreign chips and technology through intermediaries like Iran, Turkey, the UAE and Kazakhstan.
The US in February sanctioned a Swiss-Italian businessman, accusing him and his associates of using companies in the UAE, Switzerland, Malta and Bulgaria for acquiring sensitive Western technologies and equipment for Russia intelligence and military.
In Italy, meanwhile, Uss remains under house arrest. He faces up to 30 years in a US prison if extradited. The Milan tribunal is yet to rule on the US extradition request.
The indictment says that Uss's alleged involvement in the chips smuggling started in 2018, the same year his father secured election as governor of the resource-rich Krasnoyarsk region.
On social media, Uss's father, Alexander, who is a member of the ruling party, has denounced the case against his son as fabricated by the US. "The political nature of these accusations is obvious," he said in a Telegram post.
The US sanctioned both father and son in December. Alexander Uss didn't respond to requests for comment submitted via his press service.
Russia, meanwhile, has put the younger Uss on a wanted list for alleged money-laundering and is asking for his handover. Uss in mid-January asked the Milan court hearing his extradition case to send him instead to Russia to face charges, the Russian state news service Tass reported.
Although the US said in June last year that Russian semiconductor imports were slashed by 90% because of its curbs, the US industry association warned in January of the "broad challenges in preventing the illicit purchase and counterfeiting" of American chips.
Also frustrating US efforts to limit the trade, Moscow has switched its focus to acquiring less advanced consumer-grade components that are easier to procure, Bloomberg News has reported.
"This is ultimately a contest of wills," said James Byrne, an expert in technology and security at RUSI. "The Russians need this, it's critical to their military program, so they have to acquire it. They'll go to great lengths for that."
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)