POlitics
Russia's Customs Service Playing Bigger Role amid Sanctions and War
December 5, 2022
Nikolai Petrov
Senior Research Fellow, Russia and Eurasia Programme, The Royal Institute of International Affairs (Chatham House)
Nikolai Petrov analyzes a series of triumphant interviews by the leadership of the Federal Customs Service and explains how the Russian financial and economic machine, along with propaganda, is operating amid the tightening Western sanctions.
Vladimir Bulavin, head of the Federal Customs Service since 2016. Source: Wiki Commons
It is generally accepted that the propaganda machine – the key component of the Putin regime – comprises the “big four” federal TV channels, the Rossiya Segodnya news agency, and Telegram channels controlled by the Presidential Administration. Yet almost the entire Putin system is engaged in spreading propaganda to one degree or another. This grew clearer with the outbreak of the war in Ukraine, when various figures of Putin's elite who had previously not been very public began to give lengthy interviews on behalf of the Kremlin aimed at certain audiences.
The head of the Federal Customs Service (FCS) since 2016, FSB Colonel-General Vladimir Bulavin, is a case in point. For years, he was Nikolai Patrushev’s deputy, first at the FSB (2006-08) and then on Russia’s Security Council (2008-13; Patrushev has been Security Council secretary since 2008); then, after serving for three years as the presidential envoy in the Northwestern Federal District, Bulavin was appointed head of the FCS, one of the key paramilitary corporations.
Before the war, the Chekist-turned-customs-officer Bulavin had been invisible, only appearing in headlines about customs-related corruption scandals, though since April he has become a very public figure at the same time the FCS has stopped publishing import and export statistics. Ahead of Customs Day on October 25, he met with Putin and gave a long interview to TASS.
The government’s website in May, and then the Kremlin website in October, published (see below) triumphant, detailed reports that Bulavin gave to Prime Minister Mishustin and then to Putin on the FCS’s accomplishments and the country's successful foreign economic policy. These reports deserve attention not only for their psychotherapeutic messages addressed to business and active citizens, but also because they give us a glimpse of the Russian economy during wartime and amid sanctions through the prism of the customs service.
Customs as a special service
The FCS is a closed paramilitary organization with service weapons, special ranks, centralized militarized logistics and supplies. It has its own supervisory bodies, as well as bodies for inquiry and administrative investigation. It is vested with the functions to conduct police operations to identify and suppress criminal and administrative offenses in the spheres of its activity and related ones.
The head of the Federal Customs Service (FCS) since 2016, FSB Colonel-General Vladimir Bulavin, is a case in point. For years, he was Nikolai Patrushev’s deputy, first at the FSB (2006-08) and then on Russia’s Security Council (2008-13; Patrushev has been Security Council secretary since 2008); then, after serving for three years as the presidential envoy in the Northwestern Federal District, Bulavin was appointed head of the FCS, one of the key paramilitary corporations.
Before the war, the Chekist-turned-customs-officer Bulavin had been invisible, only appearing in headlines about customs-related corruption scandals, though since April he has become a very public figure at the same time the FCS has stopped publishing import and export statistics. Ahead of Customs Day on October 25, he met with Putin and gave a long interview to TASS.
The government’s website in May, and then the Kremlin website in October, published (see below) triumphant, detailed reports that Bulavin gave to Prime Minister Mishustin and then to Putin on the FCS’s accomplishments and the country's successful foreign economic policy. These reports deserve attention not only for their psychotherapeutic messages addressed to business and active citizens, but also because they give us a glimpse of the Russian economy during wartime and amid sanctions through the prism of the customs service.
Customs as a special service
The FCS is a closed paramilitary organization with service weapons, special ranks, centralized militarized logistics and supplies. It has its own supervisory bodies, as well as bodies for inquiry and administrative investigation. It is vested with the functions to conduct police operations to identify and suppress criminal and administrative offenses in the spheres of its activity and related ones.
"Customs has gradually turned into a special service since Putin's return to the presidency in 2012."
Starting in 2013, FCS law enforcement units have conducted criminal investigations into customs evasion and cash smuggling. In 2020, they received the same authority over criminal cases on tobacco and alcohol smuggling. Last year, the FCS proposed giving customs officials the authority to conduct investigations in criminal cases on currency regime violations. The initiative was supported by the Ministry of Finance, the FSB and the Prosecutor General's Office and is included in the Russian government’s legislative agenda for 2022.
Customs fulfilling the plan
The FCS is penciled in to transfer RUB 6.226 trillion to the federal budget this year. In the first nine months of the year, it transferred RUB 4.796 trillion, almost RUB 220 billion higher than the implied target for nine months. It seems confident that it will hit the full-year mark.
Meanwhile, the financial support provided to business in the form of exemptions and preferences is estimated in Bulavinov's reports at RUB 850 billion over the past 10 months and to come to RUB 1 trillion by the year-end. The figures include exemptions from customs duties on 1,318 goods considered “critically or socially important” by the government. Since the exemptions were put in place, 6.3 million tons of the goods worth $24 billion were imported. Customs was also affected when 297 aircraft, which had previously been temporary imports (being leased from Western companies), were not returned to their owners (made possible by a government decision) and were used inside the country, meaning RUB 264 billion in lost customs payments.
Customs as donor
The FCS has the right to donate certain confiscated goods – medical products, baby food, perishable food, clothing and footwear – to schools, kindergartens, hospitals, social welfare offices and other government organizations.
On November 23, the Duma passed amendments to Article 325 of the Law on Customs Regulation that expanded the list of goods that state organizations can donate. It includes food in original packaging, household appliances, children's goods and "rehabilitative technologies." The initial proposal entailed allowing good donations also to private charitable organizations – now prohibited by law – but in the end only one was included: the All-Russia People's Front.
On its books in 2020, the FCS had 20,500 confiscated goods, worth more than RUB 8.5 billion, while in the first half of 2021, 7,400 goods, valued at RUB 5.2 billion, were confiscated. Currently, the government spends as much as RUB 160 million a year just to store the confiscated foodstuffs at customs.
Parallel imports
So-called parallel imports – importing original products without getting permission from the rights holders – were legalized in May. Their volumes nearly doubled from May to September. There is a list of such products approved by the Ministry of Industry and Trade, consisting of 52 categories. The volume of goods imported as parallel imports amounted to 1.6 million tons as of end-October, including more than 1 million tons of “critical imports” – those that came under sanctions and now can’t be officially imported into Russia. The value of the parallel imports comes to $12.6 billion, with “critical imports” making up slightly more than half at $6.7 billion.
Adapting logistics
Amid the sanctions, there has been a reorientation of commodity flows, and customs posts (especially those going east, which includes the borders with China, Azerbaijan, Iran, Uzbekistan and Turkey) are working round-the-clock. Still, those going west aren’t completely blocked – about 800 trucks a day from European countries pass through Russian border crossings and about 600-800 through Belarusian checkpoints. This is medicines, food and other goods that haven’t been hit by the sanctions.
The main container shipping lines have closed and the number of containers under the watch of customs in the Baltic and in the south has noticeably declined. Container traffic is growing in the Far East, meanwhile, with an average of 13,000-15,000 containers processed daily.
Customs fulfilling the plan
The FCS is penciled in to transfer RUB 6.226 trillion to the federal budget this year. In the first nine months of the year, it transferred RUB 4.796 trillion, almost RUB 220 billion higher than the implied target for nine months. It seems confident that it will hit the full-year mark.
Meanwhile, the financial support provided to business in the form of exemptions and preferences is estimated in Bulavinov's reports at RUB 850 billion over the past 10 months and to come to RUB 1 trillion by the year-end. The figures include exemptions from customs duties on 1,318 goods considered “critically or socially important” by the government. Since the exemptions were put in place, 6.3 million tons of the goods worth $24 billion were imported. Customs was also affected when 297 aircraft, which had previously been temporary imports (being leased from Western companies), were not returned to their owners (made possible by a government decision) and were used inside the country, meaning RUB 264 billion in lost customs payments.
Customs as donor
The FCS has the right to donate certain confiscated goods – medical products, baby food, perishable food, clothing and footwear – to schools, kindergartens, hospitals, social welfare offices and other government organizations.
On November 23, the Duma passed amendments to Article 325 of the Law on Customs Regulation that expanded the list of goods that state organizations can donate. It includes food in original packaging, household appliances, children's goods and "rehabilitative technologies." The initial proposal entailed allowing good donations also to private charitable organizations – now prohibited by law – but in the end only one was included: the All-Russia People's Front.
On its books in 2020, the FCS had 20,500 confiscated goods, worth more than RUB 8.5 billion, while in the first half of 2021, 7,400 goods, valued at RUB 5.2 billion, were confiscated. Currently, the government spends as much as RUB 160 million a year just to store the confiscated foodstuffs at customs.
Parallel imports
So-called parallel imports – importing original products without getting permission from the rights holders – were legalized in May. Their volumes nearly doubled from May to September. There is a list of such products approved by the Ministry of Industry and Trade, consisting of 52 categories. The volume of goods imported as parallel imports amounted to 1.6 million tons as of end-October, including more than 1 million tons of “critical imports” – those that came under sanctions and now can’t be officially imported into Russia. The value of the parallel imports comes to $12.6 billion, with “critical imports” making up slightly more than half at $6.7 billion.
Adapting logistics
Amid the sanctions, there has been a reorientation of commodity flows, and customs posts (especially those going east, which includes the borders with China, Azerbaijan, Iran, Uzbekistan and Turkey) are working round-the-clock. Still, those going west aren’t completely blocked – about 800 trucks a day from European countries pass through Russian border crossings and about 600-800 through Belarusian checkpoints. This is medicines, food and other goods that haven’t been hit by the sanctions.
The main container shipping lines have closed and the number of containers under the watch of customs in the Baltic and in the south has noticeably declined. Container traffic is growing in the Far East, meanwhile, with an average of 13,000-15,000 containers processed daily.
"Customs is simplifying and speeding up clearance procedures. All declaring is done remotely; declarations are submitted electronically."
Of the 5.5 million declarations filed last year, 4.5 million were automatically registered. Of these, 1.5 million were processed electronically, with the average time for processing at 2.5 minutes.
It is the so-called green sector (preferred by business) where automated declarations are being expanded. They are now used by about 14,000 companies, which account for three fourths of all declarations submitted and 88% of the duties to the federal budget.
Such efficiency is largely due to the reform wrapped up two years ago that took the FCS online. It led to the establishment of eight electronic customs offices and 16 electronic declaration centers.
It is the so-called green sector (preferred by business) where automated declarations are being expanded. They are now used by about 14,000 companies, which account for three fourths of all declarations submitted and 88% of the duties to the federal budget.
Such efficiency is largely due to the reform wrapped up two years ago that took the FCS online. It led to the establishment of eight electronic customs offices and 16 electronic declaration centers.
Monument to shuttle traders in Manzhouli (China) on the Russian border. Source: Wiki Commons
FCS and annexation
With the annexation of Ukrainian territory, customs branches are being set up in each of the four new federal subjects. The Donetsk and Luhansk customs will be part of the Southern Customs Department, headquartered in Rostov-on-Don, while the Kherson and Zaporizhzhia customs will be assigned to the Crimean Customs Department. Note that currently the FCS has department in each of the federal districts, 83 regional branches and over five hundred customs posts.
There are no customs on the former border between Russia and the Lugansk and Donetsk republics anymore, though inspection complexes and workers have been kept there, along with border guards, to deal with security issues.
The number of declarations from the new regions is estimated at just several dozen per day currently, versus about 10,000 declarations per day across the country. The FCS, according to Bulavin, is capable of “digesting” the additional flow rather efficiently.
Personnel for the new customs offices are being trained, and after the New Year, as prescribed by law, customs clearance and customs control will be launched in the new regions.
With the annexation of Ukrainian territory, customs branches are being set up in each of the four new federal subjects. The Donetsk and Luhansk customs will be part of the Southern Customs Department, headquartered in Rostov-on-Don, while the Kherson and Zaporizhzhia customs will be assigned to the Crimean Customs Department. Note that currently the FCS has department in each of the federal districts, 83 regional branches and over five hundred customs posts.
There are no customs on the former border between Russia and the Lugansk and Donetsk republics anymore, though inspection complexes and workers have been kept there, along with border guards, to deal with security issues.
The number of declarations from the new regions is estimated at just several dozen per day currently, versus about 10,000 declarations per day across the country. The FCS, according to Bulavin, is capable of “digesting” the additional flow rather efficiently.
Personnel for the new customs offices are being trained, and after the New Year, as prescribed by law, customs clearance and customs control will be launched in the new regions.
"Nine months after the start of the war and the first round of sanctions, the Russian economy is doing better than experts had expected."
The explanation is twofold: inertia and adaptability. Business has managed to reorganize in many respects, finding new partners and setting up new logistics. An understanding of how that is going can be gleaned by looking at what is happening at the FCS.
Not everything that the leadership of the FCS says is worth taking for granted. While they continue to voice an upbeat tone, their attitude toward sanctions is growing increasingly serious. This is clearly seen in Bulavin's speeches: April 5 – sanctions are briefly mentioned; May 5 – the sanctions are unprecedented, but the measures taken by the president and the government have significantly mitigated their impact on the country's economy and business; June 16 – the sanctions don’t bother us; June 23 – the sanctions are comprehensive and now might be called an economic blockade; October 20 and October 25 – “everything is going according to plan, without any disruptions." In the latter case, it’s not only the time that matters, but also the place – Bulavin personally reports to the president.
Not everything that the leadership of the FCS says is worth taking for granted. While they continue to voice an upbeat tone, their attitude toward sanctions is growing increasingly serious. This is clearly seen in Bulavin's speeches: April 5 – sanctions are briefly mentioned; May 5 – the sanctions are unprecedented, but the measures taken by the president and the government have significantly mitigated their impact on the country's economy and business; June 16 – the sanctions don’t bother us; June 23 – the sanctions are comprehensive and now might be called an economic blockade; October 20 and October 25 – “everything is going according to plan, without any disruptions." In the latter case, it’s not only the time that matters, but also the place – Bulavin personally reports to the president.
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