No go for Moscow: Russia’s military-industrial complex keeps trying to order key equipment from Taiwan but vigilant banks stop exports

RU

What the Russian military tried to buy

Taiwan's Giant Force Instrument Enterprise makes essential industrial testing equipment that puts parts through extreme conditions. This can involve heating or cooling. Some instruments are tested in a centrifuge or by exposing them to water droplets.

Examples of such equipment include vibration testers, which are essential for testing equipment and parts in the aerospace and submarine industries, and vibration shakers, which are used in precision casting. Moulds, when filled with inert material, are vibrated to improve compaction, resulting in better quality castings with lower scrap rates. Salt spray chambers (also known as “salt fog” chambers) are used to test the corrosion resistance of automotive, aircraft, and marine parts, or to check the quality of coatings in electroplating/fluoridation or powder coating and gas-thermal spraying. For example, sensors used on ships are tested in a chamber that creates an atmosphere saturated with fine salt spray particles, with various chemicals sometimes added.

“Salt spray chambers are an incredibly important testing tool for both optoelectronics and foundry, electroplating, and gas thermal spraying applications. Aside from that, they are used to test the heat-resistant coating of rocket bodies, satellites, and their components,” explains military expert Leonid Dmitriev.

This equipment was regularly purchased in Taiwan by Russian companies. As it turned out, even after the start of Moscow’s full-scale invasion of Ukraine, Taiwanese businesses have maintained business ties with Russian firms. The Insider has gained access to correspondence between Jessica Hsu (徐慧), an employee of Taiwan-based Giant Force Instrument Enterprise, and Test Partner LLC (ООО «Тест Партнер»), a company based in the Russian city of Yekaterinburg that trades in test equipment.

How cautious banks foiled the plan

In October 2023, Giant Force and Test Partner LLC agreed on the shipment of an ESST-832 salt spray chamber to Russia. However, in January of the following year, Giant Force informed the Russians that their payment was “hung up” at a local bank, with no clear timeline for its completion. The Taiwanese firm said the bank cited tighter trade regulations with Russia, which were making business with the sanctioned country increasingly difficult — a development that meant Giant Force would have to halt any further orders.

However, just two months later, at the end of March 2024, Giant Force and Test Partner LLC began discussing a scheme in which payment for the salt spray chamber in U.S. dollars would be sent to a Malaysian intermediary, EMS Test Measurement Sdn Bhd. This company would handle transportation and then remit payment for it — in Chinese RMB — to the Taiwanese manufacturer. The Taiwanese apologized for any financial overcharges due to the complexity of the scheme, but promised the Russians discounts on future orders.

The Russian buyers, Test Partner LLC, responded that they could only pay in yuan, not U.S. dollars. The Taiwanese then proposed transferring RMB from the bank serving the Russians to Malaysia, and the Russians countered by suggesting that the payment be made through Kyrgyzstan. This method proved unworkable. The manufacturing firm would likely not be able to send anything to Russia, as incoming funds from Kyrgyzstan would have triggered scrutiny from the bank, which Giant Force would likely fail to satisfy. In the end, the parties reverted to the original plan of transferring money to Malaysia.

Negotiating the final transfer amount and preparing delivery documents from Malaysia took some time. Judging from the correspondence, by then the Russian buyers were under pressure from their counterparties. “We have already lost a lot of time, and we have big problems with our clients,” wrote one of Test Partner’s employees.

Then in May, a Malaysian manager contacted Taiwan and said that, at the last minute, the bank had refused to accept the payment from Russia.

The Taiwanese, in a desperate move, suggested that the Russians travel to China’s Suzhou, a city west of Shanghai, and bring 51,750 yuan (approximately $7,000) in cash. However, the Russians opted to revisit the idea of making the payment from Kyrgyzstan using a front company's account. The Suzhou factory in China informed them that their Chinese bank would not accept a payment from Kyrgyzstan if the customs declaration listed Russia as the destination. According to the Taiwanese, the payment could only go through if the salt spray chamber's final destination was listed as Kyrgyzstan.

The Russians asked how the Chinese bank would know where the chamber was going if their agent could simply pick it up from the Suzhou warehouse — and disappear with it into the wind. The Taiwanese manager explained that the agent would still have to file paperwork with Chinese customs, and there they would have to disclose information about the transaction.

Already in 2024, Test Partner also requested test chambers from Giant Force on behalf of Peleng JSC in Belarus (ОАО «Пеленг») — a company under EU and UK sanctions that develops and manufactures optoelectronic systems, including for the defense sector.

Meanwhile, Giant Force Instrument Enterprise maintains that they are no longer doing business with Russian entities. The Insider's Taiwanese colleague Yian Lee contacted Ms. Jessica Hsu, who confirmed that Test Partner LLC and JSC Peleng had been partners of Giant Force long before the war in Ukraine began. She claimed that following Taiwan's imposition of export restrictions, Giant Force Instrument Enterprise had ceased operations with both firms.

According to Ms. Hsu, Giant Force sells a lot of equipment, and she does not know if Test Partner LLC or Peleng JSC might have purchased these products through “other channels.” She expressed hope for an end to the war, which would allow Giant Force to resume business with Russia and Belarus.

Sanctions discipline banks — but not states

The above case shows that by early 2024 Taiwanese banks had effectively set up a roadblock preventing direct exports of dual-use goods to Russia.

The leading role in blocking these shipments, as seen in the example above, belongs to the banks, while the customs authorities are playing second fiddle. First, banks have the knowledge and capabilities to understand what their counterparties are doing and what they are shipping to each other — even at the contract stage. Second, although China is Russia’s military and political ally, its banks are still fearful of U.S. financial sanctions and are unwilling to take risks and receive payments from Kyrgyzstan for equipment that is being sent to Russia — both on paper and in reality.

Moreover, the issue of dollar payments significantly complicates a bank manager's task of preparing such transactions. All of this means that equipment that could have been purchased as early as October 2023 may not arrive in Russia until June 2024 — if at all. But such schemes would not be possible at all if the Taiwanese authorities paid the necessary attention to their companies involved in such schemes.

It is worth noting that banks do not restrict all sales of dual-use goods — especially if they come directly from China. In recent years, Test Partner LLC has regularly imported vibration testing equipment from the Chinese company ETS Solution. Correspondence between Test Partner LLC and ETS Solution clearly indicated — including in the «Subject» column — that vibration test rigs were ordered for the Nizhny Novgorod-based JSC Pavlovsk Machine Building Plant “Voskhod,” which is publicly known to be a leading aviation enterprise specializing in hydraulic control systems for airplanes and helicopters. Voskhod itself is not under sanctions, but the Gidroagregat plant, which is closely associated with it — through its management, location, production chains, and common history — has been under U.S. sanctions since December 2023.

Arrangements for the delivery of the equipment were reached in April 2023. As per customs data, the H1248A/IPA150L vibration test bench successfully arrived in Russia in December of the same year, while the LS748A vibration test bench was delivered in November. Moreover, Test Partner LLC managed to register subsidiaries in Czechia — and most likely Turkey — without any problems. This indicates that the Taiwanese authorities aren’t the only ones looking the other way when their country’s companies do business with suppliers for the Russian military-industrial complex.

The management of both Test Partner LLC and Peleng JSC did not respond to requests for comment from The Insider.