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US sanctions fail to stop Russia connecting with Cisco hardware

Grey market resellers provide backdoors into China, too

US sanctions are doing little to stem the flow of controlled technologies, with Cisco network gear still making it to Russia, and Intel CPUs and Nvidia GPUs still on sale in China.

According to The Wall Street Journal, nearly a year after Russia's illegal invasion of Ukraine began, Cisco networking equipment not only remains widely available but is still streaming into the country in spite of sanctions. As the saying goes, "if there's a will, there's a way" and that way is the gray market.

The problem is rather simple. While the US can prohibit the sale of controlled goods to Russia or Chinese companies, there's little American authorities can do to stop third parties that circumvent its restrictions.

According to a WSJ analysis of customs data, many of the grey market resellers are based in Asia and Turkey and exist entirely to circumvent US sanctions and in violation of Cisco's seller rules. And because they do little if any presence in the US, there's essentially nothing authorities can do to stop them.

Cisco, for its part, stopped doing business in Russia shortly after Russia's illegal invasion of Ukraine commenced, and moved to end all operations in the country by June last year.

The networking vendor claims all equipment making its way into Russia is either counterfeit or has been purchased through an unauthorized third party.

The Register asked contacts at Cisco to find out what, if any, measures — software or otherwise — the company had in place to prevent the use of illegitimately purchased equipment in sanctioned nations; we'll let you know if we hear anything back.

It's not just Cisco products finding their way onto the gray market and ultimately into Russia. The WSJ reports that Russia also relies on gray market resellers for Apple products, luxury cars, and even toys.

The Register has previously reported on the gray market for enterprise IT hardware in Iran.

However, in principle, there's really little reason for a company like Cisco to do anything about these sales because they are initially appear to be legitimate deals with partners outside sanctioned nations. What these Russian firms are doing is a bit like a minor paying an adult to buy alcohol for them. As long as the cashier doesn't know or have reason to suspect it's for a minor, they have no reason to deny the sale.

However some have questioned the extent to which vendors and their authorized resellers should assume responsibility for how their products are used, in light of a recent report, that found that the Chinese agency responsible for developing and maintaining the nation's nuclear arsenal has for years used gray market retailers to purchase components from Nvidia and Intel.

Those purchases were made despite a decades-old trade ban baring the sale of these goods to foreign militaries.

That's not to say the US isn't fighting back against gray market sellers and shell companies. The Commerce Department has added companies with suspected ties to foreign militaries and restricted nations to its "Entity List" with increased frequency as of late. Just this week the Commerce Department added six firms with ties to Chinese spy balloons to the list. These restrictions require US firms to obtain special licenses granting them permission before they can sell their goods.

But as you can imagine, as soon as you take one shell company or middleman down, another pops up in its place. And as the WSJ discovered last summer, the Commerce Department also has a habit of rubber stamping the vast majority — 94 percent to be exact — of licenses required for these exports anyway. ®

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