Investigations
In Russia, the importation of sanctioned components for the defense sector has grown into an industry of its own. As a result, the market has become saturated with corporate disputes and clashes between suppliers and the state. The Insider reviewed Russian arbitration court records and found that suppliers, contractors, and intermediaries are suing one another over faulty components — which often turn out to be Chinese knockoffs that have been substituted for branded Western parts. Banks in Central Asia and Turkey are shutting down exporters’ accounts en masse at the first sign of suspicious counterparties or questionable shipments, and the Russian Ministry of Defense — desperate for critical weaponry — is demanding penalties from manufacturers for missed deliveries. All of this points to one thing: despite official reassurances, sanctions are indeed causing severe disruptions to Russian military production.
With reporting by Timur Olevsky.
His Majesty’s smugglers
One of the key smuggling operations involved a company registered in the British Virgin Islands (BVI). ARP Investment Limited supplied integrated circuits to the St. Petersburg-based company Northern Star LLC (ООО «Северная звезда»). This is spelled out explicitly in court documents:
“Deliveries of sanctioned foreign goods for the needs of the Ministry of Defense of the Russian Federation were carried out by Northern Star LLC from the foreign manufacturers OSAUHING LYUMIVEST, SHENZHEN SIERYCUS TECHNOLOGY CO (China), and were processed to bypass sanctions through ARP Investments Limited (BVI).”
The issue arose when ARP did not receive payment for the components — namely “monolithic integrated circuits of various configurations” — and filed a 65 million ruble lawsuit ($830,000).
The British Virgin Islands are typically used by wealthy corruption-linked figures. But for routine trade and procurement operations or sanctions evasion, such a choice is unusual. As a British Overseas Territory, the BVI is a risky place from which to facilitate black-market chip imports to Russia, as the UK government has access to the islands’ corporate registry and can easily identify a company’s true beneficiaries.
The microchip case linked to Turchak’s company
One of Russia’s largest producers of air, land, and naval weaponry, Zaslon JSC (АО «Заслон»), also faced delivery issues. The company is owned by the family of Andrei Turchak, former secretary of United Russia’s General Council and current governor of the country’s Altai Republic. Zaslon was sued by importer ITC LLC (previously covered by The Insider), which demanded $1 million under a contract for programmable logic integrated circuit microchips — technology The Insider has also reported on.
In response, Zaslon claimed that most of the components delivered had been used. “The numerous scratches discovered may be the result of attempts to reuse the microchips (reballing — the restoration of ball grid array leads),” according to the company’s technical report.
The court found Zaslon’s refusal to accept the defective goods justified and dismissed the supplier’s lawsuit.
The case of the swapped chips
For all types of weapons that include electronic components, the supply of field-programmable gate arrays (FPGAs) — which, of course, are not produced in Russia — is critically important. Without them, for example, a drone cannot perform the rapid calculations needed to recognize faces or shapes. The global market leaders in this technology are the brands Xilinx (owned by Intel) and Altera (owned by AMD). Unlike common, inexpensive non-programmable chips (such as processors, controllers, and others used in consumer and office electronics), a single programmable FPGA can cost up to $100,000.
Azimut LLC promised to deliver $500,000 worth of Xilinx FPGAs to the defense plant NTC Elins («НТЦ Элинс»), which develops control systems for mobile and stationary air defense units, armored vehicles, aircraft, and missile systems. However, the attempt to bypass sanctions and establish deliveries failed. Instead of original chips, Azimut purchased Chinese substitutes. The defense plant initially agreed to the replacement but later filed a lawsuit in the Arbitration Court of the Moscow District. The Chinese FPGAs proved useless, and in court, Elins stated that it couldn’t integrate them into its final product “due to the inability to use the microchips without corresponding modifications to the Ministry of Defense’s reference software.”
The legal dispute is still ongoing. The cassation court refused to recognize the Chinese replacement chips as counterfeit and sent the case back to the lower court for a retrial.
In any case, the failure to deliver the required FPGAs may have disrupted the timely development of smart target-recognition systems for air defense units, radars, and missile guidance. In this way, a Russian court has provided clear evidence that sanctions are working — and that they are creating serious problems for Russia’s defense industry.
The case of the exposed end user
Another example of sanctions working effectively emerged in a case between Bi Pitron LLC (ООО «Би Питрон») and the Electrophysical Research Institute (NII Elektropribor) heard by the St. Petersburg Arbitration Court. Defense enterprise NII Elektropribor develops high-precision navigation, gravimetry, and gyroscopy systems for military vessels. It urgently needed an electronic data exchange module for the VDES system, which connects ships, coastal facilities, and maritime security units — a module manufactured by the British company CML Microcircuits.
Bi Pitron had committed to delivering the module but failed to do so and became the defendant in the lawsuit. The court proceedings revealed the entire (ultimately unsuccessful) sanctions-evading supply chain. Bi Pitron had signed a contract with the Turkish company MLG Teknologji Anonim Sirketi, which in turn placed the order with the British manufacturer. But something went wrong.
According to court records, the manufacturer initially produced the module in good faith but then halted the shipment and launched an internal investigation. The British plant grew suspicious after receiving more than ten different requests for the same specialized module within a single month — each request containing conflicting information. The real end user was intended to be concealed somewhere in this chain, but the attempt failed.
“Since the end user of the product was the plaintiff (the defense conglomerate), MLG Teknologji Anonim Sirketi was unable to provide the documentation requested by the manufacturer. As a result, the manufacturer/exporter, despite having a contract with the distributor, refused to deliver the products to MLG Teknologji AnonimSirketi,” the court ruling states.
Bi Pitron also attempted to procure the module through Laser Components LLC (ООО «Лазерные компоненты») via China but was turned down “due to a ban on the sale of this component within China and on its export from China.”
The case of the far-sighted Swiss
The Insider has previously written about the crucial role high-precision oscilloscopes and signal generators play in electronic warfare. One of the industry leaders in this field is the Swiss brand AnaPico AG.
A Russian arbitration court inadvertently revealed that the end recipient of AnaPico frequency generators in Russia — via a network of suppliers — was the Russian Corporation for Rocket and Space Instrumentation and Information Systems (RKS JSC, also known as “Russian Space Systems”).
RKS had ordered a signal generator from AnaPico AG through Radiomera LLC (ООО «Радиомера»). In January 2023, in turn, Radiomera placed the order with Anapico RUS («Анапико РУС»), the official Russian representative of AnaPico AG. However, Anapico RUS later notified Radiomera that the parent company was terminating all deliveries to Russia following a decision by Swiss authorities.
Russian Space Systems agreed to accept Chinese equivalents but later refused to sign a supplemental agreement for them. Ultimately, the Moscow Arbitration Court ruled to terminate the supply contract.
The case of the drone troubles
Court records show that even drone production in Russia is plagued by setbacks. The NaukaSoft Research and Production Enterprise («НПО Наукасофт») was supposed to supply a power system for the SES-7000-NS helicopter-type UAV to Strela JSC (АО «Стрела»). These drones are typically used for reconnaissance or to drop munitions. The order was placed on behalf of the Defense Ministry.
However, as the court revealed, the supplier failed to provide the electrical connectors, as it was unable to manufacture them properly. These connectors were notably once a strong suit of Soviet industry: large circular Soviet «plugs,» packed with sharp pins in sturdy metal casings, were a common sight in the USSR. In the absence of lightweight plastic imported connectors, they were used in Soviet computers until eventually being replaced by imported standards.
NaukaSoft was ordered to pay a penalty.
The case of the unfinished ships and sonar station
The Amur Shipbuilding Plant, which once built nuclear submarines and now produces surface warships, filed a lawsuit against the Taganrog-based Priboy Plant. Priboy had been contracted to supply the Zarya-2 unit, made up of an antenna module and control equipment, valued at over 670 million rubles ($8.55 million). But the delivery fell through. The missing Zarya components were intended for the construction of the corvettes Grozny and Bravy (orders No. 2105 and No. 2106 under Project 20380), effectively stalling the ships’ production.
Foundation plate of the corvette “Grozny”
Priboy openly blamed sanctions for the disruption: its suppliers cited the unavailability of “foreign-made components (FMCs)” due to the EU’s sanctions regulations imposed on February 25, 2022.
As Priboy explained, import substitution efforts fell flat. The plant tried to source allegedly domestic electronic parts from the Voronezh Semiconductor Device Assembly Plant JSC and Milandr Design Center JSC. But those manufacturers were unable to produce them, and it turned out the supposedly domestic components actually included foreign-made microchips, whose import had been restricted by the European Council sanctions.
As a result, the antenna design documentation had to be modified. One item, the Tsenzurka-2 system (used for the automatic monitoring of sonar antenna converters), was removed from the spare parts kit because another supplier — Southern Federal University’s Piezopribor R&D Center — was also unable to deliver the required foreign components, again due to expanded sanctions against Russia.
The case of the frozen accounts
Technolink LLC (ООО «Технолинк») had agreed to supply high-precision laboratory equipment to the Russian Corporation for Rocket and Space Instrumentation and Information Systems. The entire supply chain was revealed in the proceedings of an arbitration court:
“At the request of the organization, employees of Technolink LLC located channels and partners in the Republics of Kyrgyzstan, Uzbekistan, and Turkey to manage and facilitate imports from abroad.”
But Technolink soon faced a string of setbacks. Its main partner in the post-Soviet region — Emslab Instrument — opened an account with the Commercial Bank of Kyrgyzstan. However, before Technolink could even sign a contract with Emslab, the bank shut down the account.
Emslab then opened an account at another Kyrgyz bank — RSK Bank. The next step in the scheme was simple:
“To prevent repeated account closures for Emslab Instrument LLC, the parties agreed to remove TechnolinkLLC from the list of direct buyers from Emslab and instead involve another Russian company — recommended by the supplier and experienced in similar deliveries.”
But that didn’t help much either. Kyrgyzstan’s Ministry of Economy and Commerce demanded that Emslab license the imported goods. Meanwhile, its account in Turkey’s DenizBank was closed, and banks in Uzbekistan, upon receiving the customs commodity codes for the shipments, immediately refused to process the payments.
At the same time, one of the intermediary companies, Primtes (Pty) Ltd, reported that the order for Rohde & Schwarz equipment — which includes high-precision oscilloscopes — was canceled by the manufacturer, fearing the products could end up in a “banned” country.
The court refused to recognize the closure of the Kyrgyz and Turkish accounts as a force majeure event:
“because the defendant, during the period of anti-Russian sanctions, knowingly assumed the obligation to supply dual-use goods from unfriendly countries, even though the products were on the sanctions lists.”
The case of the National Guard that doesn’t trust domestic GAZelles
A major company involved in drone technology, the Special Technology Center (STC), failed to deliver the Strazh anti-drone system to the Russian National Guard (Rosgvardiya) on time and according to the original contract specifications, court records show. The contract was worth 135 million rubles ($1.72 million).
Rosgvardiya’s main complaint involved the replacement of the specified Ford Transit chassis with one from the Gorky Automobile Plant’s GAZelle model. Why exactly the Russian-made chassis didn’t satisfy the agency remains unclear. The case file does not include a technical description of the anti-drone system, but it appears the system is mounted on a vehicle chassis.
The defendant explained:
“Due to the bad-faith actions of foreign companies, including automakers that have exited and ceased operations in the Russian Federation, it is no longer possible to use vehicles manufactured by Ford.”
The court sided with STC.
How arbitration courts revealed the defense industry’s dependence on sanctioned goods
Russian arbitration courts have repeatedly found that disruptions in the delivery of imported components along supply chains lead to failures in supplying various assemblies and parts, ultimately causing state contracts to collapse. Decades of broken production chains in electronics, instrumentation, and mechanical engineering have made Russian industry fully dependent on both Western and Eastern suppliers for many components and devices. To develop competitive domestic electronics, Russia would need to reintegrate into the global system of technology exchange and distributed manufacturing — and then spend 15 to 20 years rebuilding those capabilities.
This means that export restrictions imposed by Western governments, together with the corporate policies of foreign companies, have created a problem that cannot be resolved with money alone. Importantly, none of the cases involved individual sanctions targeting specific people or companies. Wherever details are available, the disruptions were caused by export controls restricting the delivery of complex technical goods to Russia — products not intended for consumer use. The conclusion is clearly supported by Russian court rulings: sanctions are having a material impact on the work of Russia’s military-industrial complex.