iPhone smugglers: the lucrative Russian trade in sanctions busting via Kazakhstan
iPhone smugglers: the lucrative Russian trade in sanctions busting via Kazakhstan
‘Parallel imports’ help many Russians to avoid unprecedented sanctions imposed on their country after the invasion of Ukraine. We went to Kazakhstan to find out how the scheme works.
By Anastasia Stogney and Anastasia Platonova.
At the Zhibek Zholy (Silk Road) car market near Almaty, Kazakhstan’s biggest city, an imaginative film director could easily shoot a low-budget sequel to Mad Max. Along the line closest to the highway stalls upholstered in siding offer various spare parts, behind them rows of shipping containers. One rusty box is one outlet. Piled on top of each other, a stepladder leads to the first floor. Snowy mountain tops provide a perfect backdrop.
Pilau, a local rice-based dish, is being cooked on every corner. Its smell hovers over the market, except for the two-story administration building, where a bleach-like smell overpowers it. Sanzhar*, a member of the Zhibek Zholy administration, meets the journalists with suspicion. He asks if we are going to film 'something embarrassing'. Despite assurances to the contrary, he refuses to let us in with the camera.
But when he hears what we would like to report on, he relaxes a bit: "Ah, it's about deliveries to Russia? I mean, here every other person delivers to Russia, my brother sells oil on Wildberries [Russian internet shop]."
Similar stories are heard all over Kazakhstan, both in other car markets, in the local version of [Moscow's famous market] ‘Gorbushka’, and in talks with more prominent businessmen. It is easy to find those who began delivering goods to Russia after the start of the war. But convincing them to talk on the record is much more difficult.
Under Russian law, "parallel imports" are legal. Kazakhstan also has no claims against it - if the goods enter its territory legally. But that's in theory. In real life everything is not so simple.
'Everyone sends something'
Aldiyar*, a man in his early thirties, is the owner of spare parts store at another, tidier indoor car market. He has recently joined the export business, sending minivans with branded goods to Russian customers bought on order in the United Arab Emirates.
At the end of March, following the exodus of foreign companies, the Russian government allowed "parallel imports" - the imports without the permission of the copyright holder - of goods "containing the results of intellectual activity." This kind of import was declared illegal 20 years ago.
Russian officials have compiled a list of what can be brought in via "parallel imports": iPhones, Dyson hair dryers, cars, furs, alcohol, and dozens of other products.
According to ACRA, a Russian financial agency, the listed products make up more than 30% of all Russian imports. In 2022, in less than 12 months, $20 billion worth of goods were brought to Russia, via "parallel imports", about 6% of the value of all imports to the country last year.
"You don’t have anything there, because Russia is the aggressor, don’t they think so?” Aldiyar argues from behind his counter. Russian owners of small outlets or sellers on Wildberries find him through chats on Telegram or, just like us, come to the market to make their deals.
“How do we transport to Russia? "Contrabass" (contraband), how else! Otherwise, it's expensive.”
How were the channels set up so quickly? - we wonder.
“Girl, take off your pink glasses. The channels are all old. They say the 1990s are back. They never ended!”
The Russian authorities insist repeatedly that “parallel imports” are not smuggling. Formally, this is true, and many businesses really trade legally, following all customs procedures.
But for imports in Russia from Kazakhstan, fewer procedures are needed. As both countries are members of the Eurasian Economic Union (EAEU), the customs duty must be paid only once, when the goods enter any EAEU state from the "outside". Then they can be moved relatively freely. True, some payments are still required. Also, not everyone imports goods legally into Kazakhstan itself.
Oleg* moved to Almaty along with the last March wave of immigrants from Russia. He runs several businesses and believes the automotive oil supply is a ‘goldmine’: many international brands have left Russia, and consumption is high, so there is always a demand.
Like many, he took the legalisation of "parallel imports" as a green light for "grey" imports. In other words, smuggling. As expected, Oleg reveals no details of his current business but says he sometimes uses the regular scheme. Documents show he passes the goods at cheaper prices, in order to save on taxes. He swears that when the trade grows, he will "whitewash", that is follow the law to the point. "They say, getting caught with a small batch is not scary, with several truckloads - that’s a whole different story," he admits.
Not everyone can trade in the "grey zone" without consequences. BBC Russian journalists found dozens of cases with a similar pattern: the shuttle traders tried to prove they were using the “parallel imports" scheme but were found guilty of illegal importing, either because the brand was not on the official list or they were selling fakes.
In September 2022, a court fined a resident of the Russian city of Vladivostok who was selling counterfeit Chanel caps - and allegedly was sure that this was a "parallel import". Earlier in April, reference to "parallel imports" didn't help a businessman from the Russian town Pskov who had tried to smuggle nearly 2,000 counterfeit Burberry umbrellas out of Belarus.
A Moscow businessman got caught while importing original household chemicals without the brand owner’s permission as the trademarks were not on the list of allowed "parallel imports”, as he claimed in court.
Many newly minted entrepreneurs from Kazakhstan may not even be aware that any special import list exists at all. Their activity is mostly monitoring Telegram channels -- hundreds of them have appeared since the beginning of the war – looking for small orders and carrying them to CDEK, a Russian delivery service company.
Anton* from Almaty has never been in the trade business until now, when he has taken on a variety of orders from Russians, among them, 'bearings for a flour mill, spare parts for Volvo, music equipment, clothes.'
He receives money from customers through Golden Crown, a Russian payment system operating also in the Commonwealth of Independent States (CIS). He takes 10 to 20% of the price of goods for his services, depending on whether he pays for the purchase. Other Kazakh resellers on Telegram quoted similar rates to the BBC reporters.
“Many people have started doing this [sending goods to Russia]. You come to the CDEK (logistics) point, and everyone sends something: refrigerators, TVs,” says Anton.
Shuttle-trade boom
As soon as sanctions were imposed against Russia, Temirlan, the co-owner of a shop in Esil electronics market in Astana, was inundated with orders. His phone book nowadays consists of his contacts’ names linked with the Russian towns they are from – Moscow, Yekaterinburg, Omsk. He sells probably the most popular product for "parallel imports” - iPhones and other Apple tech.
Some shuttle traders, often from the Urals and Siberia, come directly, and pay in cash, he says.
Many of them are very young, 18 to 20 years old, so they come with their parents.
"Some [dealers] go to the border with Russia and sell [phones] right there from the Kazakh side," he says.
Others order online: like other resellers, Temirlan accepts payment with the Golden Crown and sends goods via CDEK.
Temirlan's store delivers 300-400 phones to Russia per month, like dozens of outlets in the Esil market. And there are hundreds like them in Astana. In Kazakhstan, maybe even tens of thousands, he thinks.
And official data from the Kazakh Bureau of National Statistics confirms the scale of the flow – in the first half of 2022, Kazakhstan increased the supply of smartphones to Russia from 560 to 183,600 units.
Like other Western brands, Apple halted supplies to Russia a week after the start of the invasion of Ukraine. BBC contacted the company asking whether it is aware Apple products are still entering the Russian market, but the response is yet to come.
"Apple can track device activation to the minute," says a former head of a major Russian technology distributor. He recalls how a store manager sold an iPhone an hour before the official start of sales, and it was instantly noticed.
"Apple is great at writing letters to distributors and knocking out fines. Do they write these letters now? It doesn't look like it."
“The company most likely understands that its phones are used in Russia,” says Denis Kuskov, CEO of the TelecomDaily agency.
“But there is no ban on movement. Maybe a Russian went to Dubai to relax and returned with an iPhone? It’s just the same."
"It sounds cynical, this is a good chance for small businesses,” admits Askar Rakhimberdiev, head of the Russian cloud service for business automation MySklad.
His company recently opened a new office in a business centre overlooking Almaty skyline. Besides local staff, they will hire IT professionals who have fled to Kazakhstan from Russia.
Last spring, the largest internet markets in Russia like Wildberries, Ozon, Yandex.Market allowed the selling of gadgets brought by "parallel imports". Dozens of tiny stores instantly offered the latest iPhones and other tech brands that have left the market.
"Large networks don’t want to annoy [big] brands, and it is more difficult for them to offer products without their consent through 'parallel imports,'" Rakhimberdiev believes.
But “small businesses are nobodies” in the eyes of corporations, he says.
“They react faster to changing circumstances and meet demand."
Big retailers are "falling hard," he said, and their revenue is deflecting to smaller ones. Data show this might be the case – a turnover of M.Video-Eldorado, Russia's top electronics retailer, fell by 30% in the second quarter of 2022. And the leader of this market, DNS, had to close 150 stores in 2022 – about 10% of its entire network.
"Gorbushka's" triumph
The market seems to be getting back to the early 2000s. Until the fall of 2005, not a single mobile phone sold in Russia was legally imported, Forbes wrote.
Handsets were declared at customs at a lower price: importers saved on taxes but paid multimillion-dollar bribes. And two wings of government were fighting each other: the economists who wanted to legalise the market, and the security forces who were controlling the import.
The peak of this infighting was Motorola case. In 2006, the Russian security forces seized almost 200,000 phones planned to be sold by Euroset, a mobile phone retailer, and ordered them to be destroyed as "counterfeit." Soon "destroyed" devices surfaced on the market in the city of Tsaritsyno. Motorola, which confirmed the authenticity of the phones, complained to the US State Department, and Vladimir Putin had to explain himself to George Bush, wrote Forbes.
“After that scandal, the market became noticeably 'whiter', and the majority of the equipment was officially imported,” says the former head of a large technology distributor.
But it also killed “small networks of several dozen stores, each registered as an individual trader, so importing handsets in suitcases have become an exception.”
Such schemes “become unprofitable," for large volumes of products, he says.
Now, everything has rolled back.
Svyaznoy, one of Russia’s large retailers, was the first to officially announce that "parallel imports" went on sale, and the others soon followed suit. How exactly the products sanctioned for sale in Russia appear on the shelves of the big market retailers is not completely clear. It is too risky to talk about it for these companies' officials.
"There are two parallel imports," says the director of a large fund investing in Russian retail for many years: A ‘friendly’ parallel import that happens with a brand’s consent where the different chains involved agree at the top.
"Everything is just as before, but with deliveries not to Russia, but to Kazakhstan, Turkey or Georgia."
The other one is "unfriendly", without the knowledge of the copyright holder. Large-volume imports can only be arranged through a country with a big market of its own. Otherwise, a sharp increase in supplies will arouse suspicion. Such countries, according to BBC sources, may be China, India, Turkey and the United Arab Emirates.
Kazakhstan, he believes, is more suitable for small "shuttle trade" deliveries.
Kazakh shuttle traders themselves also buy phones mainly in the UAE, as BBC was told by five entrepreneurs engaged in such business. Prices are much lower there than with larger Kazakh distributors. And many traders in the Emirates have had long-standing business partners.
From Kazakhstan, shuttle traders mainly carry gadgets to closer towns in Russia: Novosibirsk, Yekaterinburg, Chelyabinsk, Omsk, local sellers say. From there they go directly to Moscow, particularly to "Gorbushka" - the legendary electronics market. Most of the goods originate from the UAE.
“They are transported unofficially, in a suitcase,” says one iPhone seller from "Gorbushka" in her YouTube blog. She told BBC that she recently went to this market.
"The situation [sanctions and war] does not concern ordinary people at all," another merchant argues, sitting at a display case with iPhones. “The more they close Russia, the more [Gorbushka] goods will come in.”
"Russians rake everything"
For phones and other gadgets, Kazakhstan is just one of the channels. But for the parallel import of cars, it is the main one. “Chinese, Japanese, and German car parts were all scooped up and taken to Russia,” says Dmitry, a seller at the Car City car market in Almaty.
Four resellers complain of half-empty car dealerships – due to the influx of Russians, waiting for a new vehicle lasts for weeks.
“I can order a car today to pick it up tomorrow. Then I’ll come and it’s already gone. The demand is very high, and whoever pays the fastest, will get it. We have to act faster and go with the cash flow,” says Zaur Istamulov.
He now lives between Moscow and Almaty. In Russia, he offered a rental of luxury cars, and in 2022 decided to start with deliveries through Kazakhstan of brands that have left Russia: BMW, VW, and Audi.
"Until now, Kazakhstan was satisfying only its own population's demand, and now huge Russia has joined in. Of course, the locals are suffering," he says.
By the end of 2022, more than 18% of all new cars bought in Russia came from Kazakhstan, industry watcher Autostat estimates. It is still no competition to China – around 60% of new vehicles come from there – but it is more than from any other country and more than previous imports from Kazakhstan.
But official dealers in Kazakhstan do not sell new cars directly to Russian citizens.
"They are afraid manufacturers will take away their dealership rights," explains car market specialist Jan Heitzer.
However there is a solution: find a local who will act as a formal buyer, who will register the car on their name, and then pass it on to a real buyer in Russia – of course, not for free.
"I ask my friends, 200-300 dollars and rahmet ["thank you" in Kazakh], they issue it, and we will send the car to Russia by a transporter," one of the resellers tells the BBC.
Asked where to find so many fake buyers, Istamulov vaguely answers: "There are ways."
To avoid this scheme, some resellers offer to deliver the car to any Russian city directly from the UAE. The choice is bigger, the prices are lower, so the profits - especially for expensive cars - are not "eaten up" even by transportation and customs clearance costs.
So, an intermediary buys a car and loads it on a ferry in Dubai sailing to a port in Iran, a country under tough sanctions for more than 40 years. The port is often in the southern city of Bandar Abbas in the Gulf where the car is then loaded onto a car transporter.
It crosses through Iran and ends up in Bandar Anzali, the port on the Caspian Sea. Then another ferry - to the Kazakh city of Aktau. Intermediaries charge about 1,500 dollars per car for this scheme.
After the war started, the demand for transporting cars from Dubai through Kazakhstan to Russia skyrocketed. Only when Moscow launched “partial mobilisation” it cooled down a bit, says Maksat, manager of the Kazakh logistics company Kazaf Motors.
“I’m going to Aktau, and there they are, one after the other, a huge number of car transporters [carrying cars to Russia]… I’ve never seen anything like this.”
“Sometimes the cars are put on a recovery truck, probably for urgent delivery," says Alexander* who deals with logistics and often visits the port.
A ferry from Iran can also land in the Russian city of Astrakhan, says Maksat.
Cars are cleared through customs there and registered in Russia, without intermediaries.
Others say that customs clearance in Kazakhstan is much cheaper. Formally, the duties of the Eurasian Union member countries are almost the same. But in Russia, the customs clearance procedure is much more stringent.
“In Russia, we don’t see a customs officer face to face, he is ‘virtual’, and can be anywhere,” Heitzer says.
So a bribe cannot be given and the real value of the car will be written in the customs declaration, he explains.
“It is different in Kazakhstan, therefore the cost on which the duty depends turns out to be two, three, or even five times cheaper there.”
There is another loophole - vehicles popular in the UAE are not environmentally friendly and they are often taken to other countries in the Persian Gulf and Africa.
They are much cheaper than ecologically cleaner versions but cannot be legally imported into Russia. But in Kazakhstan, customs are ready to turn a blind eye to this.
In the circle of sanctions
After being transported across half of the world and cleared by customs, the cars finally end up with Russian customers. Formally, cars are issued to individuals and sometimes they are the real customers. But often at the end of the chain is a large car dealership.
Zaur Istamulov says there is no other way for the dealers to import cars.
The share of individuals importing new cars to Russia soared from 3% to 30% in December 2022, and while at its peak in September, it reached 56%.
Until July, companies could not import new cars into Russia due to a legal snag - unlike individual traders, they needed a document from the manufacturer. Then the Russian government lifted these restrictions, but it did not fundamentally change the flow. The schemes were already established and transport through individuals turned out to be more profitable from a tax saving point of view.
"Many dealers advertise the cars imported and cleared through customs by individual traders," Sergey Tselikov, director of Avtostat, confirmed.
He estimates that 90% of dealership imports are of Chinese cars and only 10% are "some elements of ‘parallel imports]."
Dozens of 2022 models by the car brands that have left Russia could be found on the largest car dealership chains' websites like Rolf and Avilon. They even offer applications for BMW iX, a model delivered to the US market only in March 2022, after the war in Ukraine began.
A man who recently ordered an Audi at a Moscow showroom and filmed the process explained to BBC the difference between seemingly identical sedans.
“These cars arrived before February 24. They have a [manufacturer’s] warranty. And anything that arrived in ‘indirect’ ways - there is no warranty for them. That is, these cars were imported unofficially, via ‘parallel imports’," he said.
Audi representatives told BBC the models seen in the video likely made their way to Russia before supplies were cut off.
"Already four countries around Kazakhstan are under sanctions: Russia, China, Afghanistan, and Iran which even manages to produce some kind of technological products," says Rakhim Oshakbaev, an economist and former Kazakh deputy minister for investment.
While on duty, he led a programme run by US Treasury officials for Kazakh banks and businesses on how not to escalate restrictions against Iran.
He is sure that brand sanctions and restrictions cannot work fully.
"Administrative costs are prohibitively high," says Oshakbaev.
"This kind of trade is carried out, in theory, by shuttle traders. An individual arrives, buys, and sends home four suitcases of goods. And who will control him?"
*a person asked the name to be changed
Additional reporting by Maria Kiseleva.
Editor of the Russian version Olga Shamina.
Read this story in Russian here.