"Lack of political will" - Why Georgia does not join anti- Russian sanctions?
Sanctions against Russia
The Georgian government says that the country will not join the sanctions that Western countries have imposed on Russia because of the war in Ukraine as this will be contrary to the “national interests” of Georgia. At the same time, the president and various state institutions claim the opposite – that Georgia is complying with all the sanctions imposed by Western countries and will not allow its territory to be used to circumvent them.
Since the Russian invasion of Ukraine on February 24, 2022, many countries — the United States, EU member states, Great Britain, Japan, Australia, etc. – introduced several packages of sanctions against Russia, both collective and unilateral.
Anti-Russian sanctions targeted the financial, energy and transport sectors, exports and imports, as well as visa policy. The sanctions hit officials, oligarchs and people close to Russian President Putin.
The Western world hopes that the Russian government will not withstand this pressure and will stop the war against Ukraine.
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Georgia has not imposed its own sanctions against Russia. Moreover, since February 24, members of the Georgian government have been stressing that Georgia will not join the sanctions imposed by the West. Ukraine is dissatisfied with the position of Georgia and speaks openly about it.
At the same time, the President of Georgia and individual state institutions have repeatedly stressed that Georgia is complying with the sanctions regime against Russia and will not help anyone avoid them.
What is really going on?
Georgia’s position on anti-Russian sanctions
For the first time since the Cold War, Russia has been hit with such an overwhelming amount of all-targeting sanctions.
As a result, the assets of the Central Bank of Russia have been frozen. Russia cannot use its reserve of $630 billion, the seven largest banks in Russia have been disconnected from the SWIFT international bank transfer system, which is why the transfer of funds is delayed.
In addition, EU airspace is closed to all Russian-owned aircraft, and ports to Russian ships. The export of dual-use goods to Russia is also prohibited.
Russian oligarchs, State Duma deputies and members of Putin’s inner circle have lost access to their real estate abroad, they were banned from traveling to Europe and the United States.
The EU is now working on a sixth round of sanctions, which will be much tougher. As part of the package, the EU plans to impose an oil embargo on Russia, ban Russia’s oil transportation and insurance services, and ban three state-run TV channels. Sberbank and two other large banks may be disconnected from SWIFT. The list of those who fall under the sanctions will also include Russian servicemen who committed war crimes in the Ukrainian city of Bucha, Kyiv region.
The first package of sanctions against Russia came into force on February 24. The next day, Georgian Prime Minister Irakli Garibashvili stated that Georgia would not join them:
“I want to clearly and unequivocally state that Georgia, taking into account our national interests and the interests of our people, is not going to participate in financial and economic sanctions, as this will only cause great harm to our country and our population”.
Since then, the Prime Minister of Georgia has repeated this statement several times. He added that the country is economically highly dependent on Russia. Garibashvili said that over the past seven or eight years, Georgia received 12 billion dollars from Russia, and the authorities “will not reduce these incomes for the population”.
Moscow praised the Georgian prime minister for his stance:
“Well done. One can only welcome such a decision”, said Vladimir Dzhabarov, First Deputy Chairman of the International Committee of the Federation Council of Russia.
“Georgia’s position on sanctions will not go unnoticed”, said Grigory Karasin, head of the Foreign Affairs Committee of the Federation Council of the Russian Federation.
Due to Georgia’s position on sanctions against Russia, Ukrainian President Zelensky recalled the Ukrainian ambassador from Tbilisi.
The statements of the President of the country, Salome Zurabishvili, were fundamentally different from those of the Prime Minister. The President commented on the issue of sanctions for international media, that is, mainly for audiences outside the country.
“I can honestly say that I would not make such a statement”, Salome Zurabishvili said in an interview with France-24 on March 2. She later told CNN that the claim that Georgia did not join the sanctions was untrue and that the problem could lie in “the vocabulary used by the government”:
“We participate in all international financial sanctions, and this is something unusual for Georgia’s financial sector… At the same time, we [Georgia] have joined all international resolutions in support of Ukraine… We [together with Ukraine] have experienced two centuries of Russian aggression and we know what it is like”, Salome Zurabishvili told Christiane Amanpour, the CNN anchor.
Members of the government call everyone who talks about the need to join the sanctions the “party of war” and accuse them of wanting to “draw Georgia into the conflict”.
Financial sector
One of the most important packages of sanctions against Russia are sanctions imposed on the financial sector – disconnection from the SWIFT system, restrictions on transfers and the use of foreign currency, as well as sanctions against banks.
In Georgia, these sanctions affected a branch of the Russian VTB bank. Its transfers were restricted and, as a result, the bank stopped working. Clients – individuals, depositors and borrowers of VTB Bank – are now served by Basis Bank and Liberty Bank.
The National Bank of Georgia explained to JAMnews that:
- A citizen of Georgia or a foreign state can transfer money to Russia if the payer or recipient, or their bank is not on the list of persons under sanctions;
- the same applies to money transfers from Russia;
- there is no way to transfer money to sanctioned banks;
- there are restrictions on money transfers, which are set by the money transfer systems themselves;
- all transactions are under special control, and it is physically impossible to bypass the sanctions.
“The National Bank is acting in accordance with the standards set by international resolutions and cannot bypass the sanctions”, the National Bank of Georgia said shortly after the sanctions came into effect on February 27.
The sanctions do not apply to non-bankbased money transfers.
According to the National Bank of Georgia, five times more money was transferred from Russia to Georgia in April 2022 than last month. In March, $27 million was transferred from Russia to Georgia, and $133 million in April, 300% more than in April last year.
We asked the financiers about the meaning of these numbers and whether they indicated an indirect way of avoiding sanctions.
This may be due to problems with transfers in March, says Giorgi Kepuladze, Chairman of the Board of Society and Banks:
“Maybe when the first stage of the sanctions began, our compatriots were unable to transfer the money, so they did it in April”.
Kakha Gogolashvili, senior fellow at the Rondeli Foundation, director of the Center for European Studies, attributes this to the increase in migration from Russia:
“We have received tens of thousands of IDPs, refugees, and citizens who are temporarily moving to Georgia, and I think that they are receiving a lot of money”.
From the point of view of financial sanctions, the possibility of turning Georgia into a “black hole” does not exist, adds Giorgi Kepuladze:
“Georgia’s banking system itself is a part of the global financial system, and it would be impossible not to adhere to these sanctions. Whatever the authorities say about us not joining the sanctions, from a financial and banking point of view, we have joined them”.
Trade
In response to the invasion of Ukraine, the West also severely restricted trade with Russia. For example, the EU banned the export to Russia of metallurgy products, cars and spare parts, as well as luxury clothing. Almost all giant companies have left the Russian market. The United States abandoned Russian oil, Lithuania – from Russian gas. The European Union says it will begin to gradually reduce the consumption of Russian oil and gas and completely abandon them in 2027.
Against this background, in early March, Russia announced that it would open its dairy products market to Georgia. The government has not denied this information. On the contrary, the Minister of Agriculture stated that “this is an opportunity for Georgian companies”.
In total, 15 Georgian companies producing dairy products got a green light on exporting their produce to Russia.
This news caused great indignation both in Georgia and in Ukraine.
“It was a very bad statement at a very bad time”, says Kakha Gogolashvili, researcher at the Rondeli Foundation. The expert believes that Russia probably did it on purpose – “it waited so long, and then opened the market when the war started”.
In his opinion, the problem lied in the position of the Georgian government:
“We could temporarily refrain from exporting produce and say that Russia may have given us this market, but as long as there is a war in Ukraine, we would not allow ourselves to export there”.
However, milk and cheese from Georgia never made it to Russia – instead of the government banning it, Georgian companies themselves refused to enter the Russian market.
To what extent is Georgia dependent on Russian economy?
Georgia buys more products from Russia than it sells. Economic dependence on the aggressor country is growing, but not nearly as much as the Georgian government claims.
For example, according to Transparency International Georgia, in 2021, Georgia’s revenues from exports, tourism, and remittances from Russia amounted to $1.3 billion (6.7% of GDP).
Georgia sells the largest amount of ferroalloys to Russia (of $610 million in total exports last year, $172 million were ferroalloys). Russia is also a big market for Georgian wine. Last year, 55% of Georgian wine exports went to Russia.
Georgia buys grain from Russia. For example, last year Georgia bought 319,000 tons of wheat from Russia for $87 million, or 94% of all wheat imports. Natural gas imports were relatively low, at 23.1% of the total imports.
The Georgian government refers to these data every time it stubbornly repeats that it will not join the imposed sanctions and does not intend to impose its own.
According to the Information Development Institute (IDFI), regardless of whether Georgia adheres to the sanctions imposed against Russia, it will lose about $114 million due to the current crisis. And if Georgia introduces its own sanctions, the loss will not exceed $500 million.
Transport and communication
According to the Ministry of Internal Affairs of Georgia, since the start of the war in Ukraine, almost 94,000 people have entered Georgia from Russia (45,068 in March, 48,797 in April).
Georgia has had no direct flights to Russia since 2019, when they were canceled by Moscow. Because of the war in Ukraine, the European Union closed the airspace for Russian aircraft. Georgia did not do this and explained it as protecting the interests of neighbouring Armenia.
At the same time, Georgia is one of the few countries that has a very liberal visa policy with Russia – Russian citizens do not need visas, they can legally stay in the country for one year.
This policy should be reconsidered because the risks for Georgia have increased greatly, says the former head of the National Bank of Georgia, financier Giorgi Kadagidze:
“The liberal visa policy, the growing trade relations with Russia, the geographical proximity, the increase in the flow of Russian citizens, the number of companies opened in Georgia [3,400 Russians have registered in Georgia as individual entrepreneurs since the begining of the war – JAMnews] – all this indicates that we are becoming a high-risk country. This needs to be reconsidered”.
“Black hole” and “black list”
“It is unfair when some people get around the sanctions and make money. Unfortunately, we see that some Asian countries are involved in this. It is very unfortunate to see such countries as Georgia on this black list”, said Andriy Yermak, head of the Ukrainian administration, during a discussion in the Atlantic Council.
This is not the first time that Ukraine has openly pointed out that Georgia can be used as a “black hole” to circumvent sanctions.
On May 1, the Main Intelligence Directorate of the Ukrainian Defense Ministry reported that Russia was negotiating with Georgia, Armenia and Azerbaijan to re-export Russian products to the international market. Earlier, on April 4, Ukrainian intelligence said that Russia was establishing a smuggling route through Georgia.
In both cases, the Georgian government called the accusations false and demanded explanations and evidence from Ukraine.
The Prime Minister of Georgia stated that “Georgia will not allow the transportation of sanctioned goods”.
US Ambassador to Georgia, Kelly Degnan, said she was pleased with the announcement, but added that “the US is following this matter closely”.
When asked whether Georgia can really be a “black hole”, expert Giorgi Kadagidze replies that this is done very simply and, as a rule, it is done by private individuals:
“There are always people and groups trying to take advantage of the situation. It has happened in the past and will happen in the future. The question is whether the state encourages or takes measures to prevent such things from happening under its jurisdiction. This is the main subject of interest when we talk about whether a state joins the sanctions or not”.
Kadagidze also gives practical examples of how this can be done:
“The most common form is a change in the country of destination of products with the advent of a new link in the form of an intermediary company. For example, microchips are not shipped from Thailand to Russia, so a company registered in Georgia buys them and transports them to Russia in a car loaded with apples. Is it possible? Yes!”.
In his opinion, in order to avoid reputational and other, more serious risks, a group should be created in the country to monitor exports and imports, transit and financial flows:
“All this is an incomplete list of standard processes that an ally / friendly country should do – and, most importantly, this information should be publicly available. So, what do we do, how do we work with our partners? Are we exchanging information? The issue of international sanctions is not a matter of “believe it or not” or “prove it or apologize”. This is a list of specific actions that the country must take to prevent its involvement in catastrophic processes”.
What does the Georgian government do, except for statements that it will not allow the country to turn into a “black hole”? There is no answer to this question. So far, no one has seen publicly any regulations that would limit the movement of goods across the border.
“They haven’t even formally adopted a law yet to limit the actions that Putin’s Russia can use to circumvent sanctions”, said Giga Bokeria, leader of the opposition European Georgia party.
“What do they mean?”, he asks. “If they do not adopt laws that the government should be guided by in order to prevent circumvention of sanctions, then on what basis do they restrict something? Are they taking action outside the law? Who will believe that this regime is taking illegal steps against Putin’s Russia?
From the beginning of the war to the present day, the Revenue Service of the Ministry of Finance of Georgia periodically makes public statements and claims that it has tightened control over customs:
“Military and dual-use goods, as well as all products that are on the sanctions list of the countries participating in the sanctions, are subject to strict customs control,” the ministry said in a statement. It also clarifies that “attention is also paid to individuals and companies that have fallen under sanctions.”
JAMnews was unable to get a comment form the revenue service about the basis on which control over cargo was tightened.
However, a source in the customs service told JAMnews that the agency had received an order, which was sent to all offices. According to this decree, there are lists of sanctioned persons and product codes. Customs officers are guided by these lists when inspecting goods.
Every time such a sanctioned consignment arrives at the border, or the sender or consignee is under sanctions, a special department is involved. According to the source, there was a case when the sender was under sanctions, but the cargo was not, and after long discussions, the cargo was let through. According to him, most of all this concerns transit cargo, and transit traffic has now grown so much that customs posts work with a double load.
If Georgia has not formally joined the sanctions, then why does it comply with the restrictions imposed by other countries? If Georgia is doing everything, why does the government say that it is not joining the sanctions – this is a question that remains unanswered.
For two weeks, JAMnews tried in vain to get an answer to this simple question from the press service of the government administration.
We asked the experts to explain this not entirely clear situation.
There is a factor of fear here – the authorities do not want to address the issue out of fear of Russia and out of fear of the West, Kakha Gogolashvili believes.
The government continues to try to sit on two chairs: “Let’s not provoke Russia, but, at the same time, declare our Western course”, says Giorgi Kadagidze.
What should have been done?
Georgia should not only have joined the sanctions, but also imposed its own, Kakha Gogolashvili believes:
“First of all, it was necessary to openly declare that we would not let dual-use and military goods pass.
Secondly, it was possible to openly declare that, we would not let Russian ships into the ports, because this is a security issue.
Thirdly, visa-free travel for Russian citizens should have been abolished by now.
Fourthly, there were talks that Russia should have restored air communication with Georgia, which it itself canceled. Now we have to ban it ourselves. We can make an exception for Armenia, but ban [Russian planes] from flying [through Georgian airspace] to any other third country.
Finally, I would recommend banning Russian companies from owning controlling stakes in Georgian companies”.
But neither Gogolashvili nor the other experts we interviewed expect this from the Georgian government, because they believe that it lacks the political will to do so.
