Wheels of fortune: Inside the car smuggling trade feeding Vladivostok

RU

In 2022, used Japanese cars made up 90% of all vehicles older than three years imported into Russia, according to data from automotive analytics agency Avtostat. Most entered through Primorsky Krai, a Russian region that shares a land border with North Korea and China. However, Japan's share has steadily decreased over the past two-and-a-half years, dropping to just 47% by September 2024, as per new Avtostat data obtained by The Insider. The agency has noted that used car imports have continued to decline in 2024. In the first nine months of the year, imports of pre-owned vehicles to Russia dropped by 8% compared to the same period last year.

Sanctions had a part to play. In 2023, Japan banned the export to Russia of cars — both new and used — with engine capacities of over 1.9 liters, citing concerns over their potential military use. Hybrids and electric vehicles also fell under the export restriction, with the move hitting the brakes on a trade that had once come close to $2 billion annually. Yet many models, like the Honda Freed, Toyota Corolla, Honda Fit, Honda Stepwgn, and Nissan Note — all popular in Russia — remain unaffected by the ban. Moreover, figures involved in the Vladivostok car trade even told The Insider that they can often negotiate with their Japanese partners to work their way around sanctions.

Chop and ship

A reporter from The Insider met on the outskirts of Vladivostok — the largest city in the Russian Far East, a full seven time zones away from Moscow — with several auto dealers trading in Asian cars through gray-market schemes.

Following Moscow’s full-scale invasion of Ukraine in Feb. 2022, a slew of major car manufacturers, including Renault and Nissan, pulled out of Russia. The market for used foreign cars took a serious hit: orders for Japanese and Korean vehicles dropped, logistics were disrupted, and parking lots in Vladivostok stood empty, say the local businessmen. This was likely due to the falling ruble and fears of a spare parts shortage for foreign cars, which would have made repairs more difficult. Large suppliers managed to weather the storm, but smaller companies suffered heavily, comments car transporter Artem (all names in this article have been changed). Artem explains that companies with cars still en route and awaiting customs clearance at the time of the invasion were hit hardest, as customers began canceling their orders, forcing traders to sell at a loss.

But as the market gradually recovered, car traders found themselves back in business. They first focused on importing cars not affected by sanctions. The dealers explain that it is essential to avoid Russia’s rising recycling fee — a charge levied on vehicles to cover the environmental costs of future disposal — which is notably lower when a car is imported for personal use by an individual. Second, importers do everything they can to bring down import duties. This has transformed the used car trade in Vladivostok into a chop shop: cars are cut into sections before being shipped so they can be declared as parts, which brings down the import duty. Once the pieces make it across the border, the car is then put back together.

“Usually, the cutting happens in Japan,” Artem explains. “One time, though, they loaded a whole car onto the ship without chopping it up beforehand. An old Audi sedan arrived, but the disassemblers didn’t have time to do the job. It was the last car on board. The disassembler said, ‘Unload it on the dock; I’ll cut it here.’ The crane lowered it down, but as soon as it hit the floor, a customs officer walked over, saw it wasn’t cut up, and hit them with the full duty. It was bought for 3.5 million yen, but now they had to pay 4 million rubles in duty — almost twice the price. In the end, the disassembler had no choice but to pay.”

Sanctioned foreign cars are also brought in — through third countries. “I thought the Japanese were so strict about following all the laws,” shares Ivan, the most experienced businessman in the group. “But my friend from Japan told me they sent a sanctioned car from Japan through Korea to Vladivostok. Then, Japanese customs called him and said, ‘What are you doing? Just let it sit in Korea a bit longer, then bring it over.’ The Japanese want to make money too.”

Ivan recently made the move from Vladivostok to Moscow, switching from dealing in spare parts to the more glamorous trade of collectible cars. Remembering how in 2012 there were protests in his hometown over a possible ban on right-hand drive vehicles, he remains optimistic about his industry:

“Vladivostok, usually pretty apolitical, turned up big. We marched for hours; the whole city was out… Now I get the vibe with the dealers in Primorsky Krai: laws come and go, but nobody really cares about them. The commission’s about the same; the client just pays more, and everyone understands. Restrictions keep tightening, but they’re not killing the market.”

Vadim, a manager at a company selling Japanese cars, adds:

“The sanctions are bulls**t; the Japanese take the money and make it work. They just need to cover it up. The car ships in a container, but they don’t mark the VIN. They put down the number, but leave out the prefix that reveals the engine size. And this still works.”

“I mostly deal with popular Japanese cars, small-engine ones — those with the sanctioned 1.9 liters and above,” Vadim says. “Before the sanctions, it wasn’t a problem; now it just costs about $3,000 more. In the old days, you could bring in a two-liter Honda CR-V hybrid for 2.2–2.3 million rubles, and now it’s at least 2.6 million. That’s the only difference.” The extra 300,000 rubles (roughly $3,000) are due to the complicated logistics, which require more intermediaries — each charging their own separate fee.

When Ivan asks his Japanese partners for direct delivery to Russia, they respond, “Cut the crap — send it through Europe or Georgia.” These routes are more complex than shipping via South Korea, and the cars rarely make it to the Russian Far East. Vehicles sent through the EU via countries like Poland are often re-registered in Belarus, where a loophole for disabled drivers allows dealers to reduce customs fees before the vehicles ultimately make their way to Russia. Belarus now supplies over 10% of Russia’s used car imports, placing it third after South Korea and Japan.

This method is convenient, especially for buyers in Western and Central Russia. Rising transportation costs and a shortage of trucks make it harder to ship cars from Vladivostok.

“I only use Vladivostok for clients who live there,” Ivan explains. “I recently brought in a red 1990 Ferrari with just 20,000 kilometers [on the odometer] for a collector. There’s no point in shipping it halfway across the world; he’s willing to take the risk of sanctions. There’s always the chance customs could seize it in a random inspection, and the authorities would likely flaunt it on TV as a crackdown on sanctioned imports,” he says.

Hurdles, foreign and domestic

The Japanese regulatory authorities — unlike local business owners — are unhappy with this kind of cooperation and are working to put a stop to it. In 2022, Tokyo’s intelligence services took an interest in Ivan's Instagram account, where he advertised the import of premium Japanese cars into Russia — which is banned.

“They saw one of the cars I bought, tracked down the auction company handling the deal, and pressured them with a $2–3 million fine, threatening to block all their operations. The company asked me to remove some content. The Japanese sent me a long letter that ended with a typical Japanese request: ‘Ivan, swear you won’t do this again.’ I didn’t reply,” Ivan says. Since then, he has been much more cautious on social media, only showing cars after they have reached the buyer.

Russian officials, who continue to increase recycling fees and tighten import rules, are also making it significantly harder to bring in used foreign cars. In the past, cars could be imported to Kazakhstan, cleared with minimal fees, and then driven to Russia, explains car dealer Danila. “The car would then be registered here, and formally it would have an outstanding debt of 1.5 million rubles ($15,400), but nobody was enforcing that. However, since April, a new recycling fee formula was introduced in Russia. It now includes any unpaid amount from customs fees in other countries. So if we saved 1.5 million rubles in Kazakhstan, it now has to be paid in Russia.” This loophole, previously used to import Chinese brands like Geely, Zeekr, or Lixiang (Li Auto), is no longer viable.

Another gray-market scheme was recently shut down after Russian authorities began treating car imports as commercial — rather than personal — if the vehicle in question was sold within a year. Danila explains:

“For example, you’d import cars, declare them as private imports for personal use, and register them under a family member, like your grandmother. But last year, customs began taking legal action against anyone importing more than three cars per year, arguing that it’s unreasonable for someone like a grandmother to need three cars a year. Customs now treats this as commercial importing, leading to lawsuits with claims of up to 8 million rubles ($82,000).”

South Korean and Chinese cars take over

South Korea has also banned exports of new and used cars with engines over 2 liters, including popular SUVs like the Hyundai Tucson, Hyundai Santa Fe, Kia Sorento, and Kia Sportage. However, used Korean imports are rare, as Russia had its own manufacturing before the war.

“Korean imports took off in 2022 when the won was low. Cars flooded into Vladivostok and Moscow,” recalls Timur, the youngest trader in the group. “In Korea, there’s a website, Encar — basically Korea’s version of auto.ru.” Russian buyers use the website to search for cars, which intermediaries then import for them.

According to Timur, the Korean car market is now nearly empty. “We have our own contacts in Korea with their own lots. They park the ordered cars, perform video inspections, check the paint thickness, show and explain everything, and then arrange for shipping to the port. We pay them both for shipping to Vladivostok and for the inspection and exit services. Right now, cars between three and five years old are running out due to limited supply. Big dealers will often come in and scoop up all the available cars, even securing extra stock,” he explains.

A few years ago, there was hardly any market for Chinese cars in Vladivostok, but now they dominate. Most demand is for new cars, imported directly by dealers without private intermediaries. “There are Chinese contacts who communicate with dealers, order cars directly from the factory, or custom-order them to specifications. The car is built, and in a few months, it’s cleared in Russia. Used cars are rarely brought over,” says Danila.

Chinese cars are more familiar to Russian buyers since they are all left-hand drive.

“People who’ve switched to Chinese brands like Haval say they have no choice, as Audi, Mercedes, Renault, and Peugeot have all left [the market] — they need to drive something,” he says.

Theft and smuggling

Japanese cars are often ordered through an auction system with the help of intermediaries. If the buyer approves, they receive an auction sheet documenting the car’s condition, features, and any defects. The vehicle is then transported to Russia, with photos taken at each stage to document any potential damage.

“Anything not pictured in those photos is fair game. If you can’t see the dashcam, it won’t be there,” says Artem, a dock worker. “Cars get picked clean along the way. Sometimes they leave Japan with a full tank, and if there’s a chance to siphon gas, it gets taken. We’ve had cases where extra keys, jacks, and emergency triangles went missing. Even at the Vladivostok warehouse, items can be snatched. Sometimes, a car arrives completely packed, and if those items aren’t documented, I can take them all for myself. Suitcases, clothes, phones, watches, cash, rings — whatever previous owners left behind and isn’t in the documents is unrecoverable. Cars from Japan and Korea come packed with all sorts of things. The rarest item I found was a Rolex watch. The Japanese owner must have been living in the car, sleeping and eating in it, and then listed it for auction. They gave it a once-over at the lot, but the port workers know where to look. Once, while working at the warehouse, one of the guys found a 90-gram gold chain. There are hidden spots: if you move the seat or lift the mat, you might find cash or a smartphone.”

The same method can be used to smuggle contraband in cars. Since sanctions have banned the import into Russia of expensive alcohol, luxury brand clothing, electronics, and even cash in dollars and euros, demand for these items has surged. “There are ‘special’ ships, when they arrive and the ramp drops, they’re packed with boxes — it’s all contraband. They bring spare parts for cars and all kinds of alcohol. Some people likely smuggle weapons and drugs, but not via car carriers,” Artem explains.

He’s also seen cases of illegally transported pharmaceuticals: “I opened a car once, and there were high-grade nootropics inside. You can’t legally import them without paperwork; only dietary supplements are allowed.”

To move goods hidden inside a car, all points in the supply chain have to be set up in advance — otherwise, things can get stolen along the way. It starts with contacts in Japan to prep the shipment, then those on the vessel who stash the goods on board. Artem has a connection in dismantling who helps make sure everything stays in place:

“I can call and ask him to get me a case of Japanese whiskey. Once I send him the money, consider it done.”