Japan-made Semiconductors Skirt Sanctions to Enter Russia

Domestically made chips avoid export controls via China and other countries

Semiconductors made by Japanese manufacturers are still entering Russia, even after its invasion of Ukraine, according to an investigation by Nikkei. The majority of transactions go through third countries, such as China, meaning Japanese laws that regulate direct exports cannot stop the flow of chips. Additional measures are needed to stop the indirect flow of goods and make sanctions more effective.

In March 2022, Japan aligned with U.S. sanctions and restricted the export of domestically produced semiconductors. Although the restrictions were implemented in stages according to product performance and other factors, "general semiconductors (were) subject to the regulations from the beginning," said an official from the Ministry of Economy, Trade and Industry.

Nikkei obtained Russian customs data from the Indian research company Export Genius and examined import records from Feb. 24, 2022, to March 31, 2023. An analysis of transactions worth $50,000 or more showed that there were at least 89 transactions of semiconductors that involved Japanese manufacturers. The transactions included at least 2 million units and were worth a total of about $11 million. China, including Hong Kong, accounted for over 70% of shipments, followed by South Korea and Turkey.

Nikkei reported in April that semiconductors from U.S. manufacturers, which were banned by the U.S. government from being shipped to Russia, were entering Russia via trading companies in Hong Kong and elsewhere.

While U.S. regulations also affect companies in third-party countries, Japan's Foreign Exchange Law only covers direct exports from Japan. Japan's trade data shows semiconductor exports to Russia in 2022 totaled 150,000 units, down 85% from the previous year. However, Japan cannot regulate chip trade effectively through other countries.

One Hong Kong-based trading company exported about 4,000 semiconductors made by Japan's Kioxia Holdings to a Russian company in October 2022 for about $170,000. An individual who Ukraine has determined is involved in Russian arms production held a stake in this Russian company.

Kioxia admitted its products are subject to export controls and said that it "requires its distributors to comply with the export regulations of each country." The company added that it "has not been able to confirm any cases of products entering Russia." The Chinese and Russian companies did not respond to Nikkei's requests for comment.

In March 2022, King-Pai Technology, a Chinese company, shipped $150,000 worth of semiconductors made by another Japanese manufacturer to a Russian trading company. In June that year, King-Pai was sanctioned by the U.S. Department of Commerce for doing business with a Russian military company.

Leaders at the Group of Seven summit in May said they would work to discourage the evasion of export restrictions. European Council President Charles Michel said, "We are now focused on shutting the door on loopholes." Dealing with the distribution of semiconductors, which involves complex supply chains, will be a test for Japan's export controls as well.