EU sanctions focus expands to financing of Russia's battlefield products, envoy says

By Julia Payne

BRUSSELS (Reuters) -European Union sanctions could target financial institutions that underpin battlefield product flows to Russia as well as the supply of products made in southeast Asia by Western subsidiaries, the EU's sanctions envoy said on Wednesday.

The bloc has imposed sweeping sanctions on Russia for its full-scale invasion of Ukraine since 2022. EU envoy David O'Sullivan said sanctions were no "magic bullet" but the aim was to make it harder, slower and more expensive for Russia to fuel its war machine. He added that he was under no illusion about circumvention and that listing companies that sell dual-use goods to Moscow was often a "whack-a-mole" effort.

The EU has made strides to cut down on circumvention via central Asian states, he said, and reductions in those flows were evident after diplomatic efforts with Kazakhstan, Uzbekistan, Armenia and others. However, he faces a more difficult challenge in stemming similar flows in southeast Asia where countries are producers, not merely transit stations.

"A lot of the product going through China is made by subsidiaries of western companies in southeast Asia," O'Sullivan said, speaking at a Brussels think tank event following visits to Vietnam, Thailand and Malaysia to tackle these issues.

"It is a question of identifying the financial institutions which are potentially funding the trans-shipment of battlefield products (to Russia)," he said.

"Where these are identified, these institutions will be contacted saying...if they do not desist they are at risk of being listed. The U.S. has done this to great effect with three instances earlier in the year. We are starting to collect the information and compare notes."

A growing challenge within the EU was to harmonise the implementation of the bloc's 14 packages of sanctions across 27 member states.

Despite the limitations, he said the measures by the EU and western powers had pushed Russia into a war economy that would take a high toll on the country's economic future and which would become increasingly evident in the next year or two.

(Reporting by Julia PayneEditing by Peter Graff, William Maclean)