It is understood that the closing of the loophole on Monday came after U.S. Treasury officials visited Kyrgyzstan in August.
The U.S. delegation visiting Kyrgyzstan’s national bank insisted it prohibit transactions for sanctioned goods with Russian entities. Similar restrictions have already put the squeeze on Chinese and Western banks doing business with Russia.
The lax handling of goods registration in Kyrgyzstan had allowed Russian traders and their suppliers in China and the West to claim that the items they were trading were headed to Kyrgyzstan rather than Russia.
The goods were in fact sent straight to Russia without crossing Kyrgyzstan’s borders. This route was a cheap and easy way to avoid sanctions.
Kyrgyzstan government statistics indicate that exports to Russia increased two and a half times from $393 million in 2021 to over $1 billion in 2022. However, experts say those figures may be understated.
Had Kyrgyzstan failed to impose the financial restrictions recommended by the U.S. Treasury, the country would have risked the exclusion of its banks from the SWIFT international bank transfer communications system, according to reports. Russia and Belarus are already excluded from SWIFT.
The Moscow Times quoted an importer of construction machinery who used the Kyrgyz bank payment route to avoid sanctions as saying that were he now to physically import goods into Kyrgyzstan and re-export them, the new legislation would add 60% to his costs.
The Moscow Times report suggested that with the Kyrgyz dodge closed, Russian importers would now seek other lax jurisdictions that would turn a blind eye to sanctions.
