Russian smugglers scour China for second-hand machine tools

Russia is scouring China for second-hand machine tools using shadowy networks of buyers, as the Kremlin races to secure vital equipment to increase arms production. Moscow’s covert strategy for obtaining precision machinery, uncovered by researchers, attempts to sidestep increasingly restrictive western sanctions and export controls that aim to stunt manufacturing for the military. The operations, run through networks of opaque companies, tap a stock of older high-end machine tools made by western companies that remain in China after decades of sales to local factories.The Center for Advanced Defense Studies (C4ADS), a Washington-based think-tank that identified the shadow trade, said the complex sourcing arrangements suggest Moscow’s claims about high-precision tools being produced in Russia were probably “exaggerated”.Allen Maggard, the C4ADS analyst who led the report on the machine tools, said Russia’s arms manufacturers were “scrambling to expand their production capabilities using whatever they can get”.Computer numerical control (CNC) tools are essential to defence industrial work because they allow automated manipulation and milling of metal © JG photography/AlamyOne procurement network, identified by C4ADS and verified by the Financial Times, is based around a Moscow-based company called AMG, a Russian military supplier that the US placed under sanctions last year. Since Russia’s invasion of Ukraine in 2022, AMG has ramped up its imports of computer numerical control (CNC) tools made by Tsugami, a high-end Japanese machine tool maker based in Tokyo. CNC tools are essential to defence industrial work because they allow automated high-precision, high-speed manipulation and milling of metal.Public filings show AMG has held contracts to obtain machine tools for Kometa, a company that develops weapons systems for Russia, including ballistic missile defence system, jet weapons and missile systems, according to sanctions listings. Tsugami machines have been identified in use at a variety of military facilities. Sergei Shoigu, then the Russian defence minister, was shown on state television in March in front of what appears to be a Tsugami machine at a factory in Altai, which makes parts for cruise missiles.Customs documents show that AMG bought about $600,000 of Tsugami equipment in 2021 from an official Japanese supplier. The buying then ramped after the invasion to $50mn in 2023, with all of the increase coming from two shadowy middlemen. The first supplier Amegino is a US-sanctioned supplier based in the UAE, whose website originally hosted on servers in Russia. Its owner is Andrey Mironov, according to Diligencia, a corporate intelligence company; no other details are available on Mironov’s background. The second is ELE Technology, which fraudulently presents itself as “a division of Gray Machinery Company”, a US machine tool distributor. ELE’s website — which appears to be lifted from the real Gray Machinery website — claims that it has a warehouse in Illinois and offers lifts from Chicago O’Hare airport for prospective customers. The site purports that Glenn and Jared Gray, two experienced US CNC traders, are members of their team. But ELE Technology is actually based 7,800 miles away in Shenzhen, China. Glenn Gray, whose full biography and image is posted on the ELE website, told the FT that he knew nothing about the company. Website registrations and old publicity material suggest ELE is run by a Chinese electronics trader called Benson Zeng. Zeng has not responded to requests for comment. A clip from a state television program shows then Russian defence minister Sergei Shoigui in front of what appears to be a Tsugami machine while he visits a factory in Altai in March © Channel One RussiaTsugami told the FT that it has not supplied any goods to ELE directly. According to the ELE website, it is currently selling two second-hand Tsugami machines, which were made in 2001 and 2005. “We’re seeing decades-old machine tools being imported to Russia,” said Maggard. “This speaks to a lack of compliance in the second-hand market, not to mention that manufacturers are unlikely to care about where their products end up after being sold.“Just because a machining centre is two or three decades old doesn’t mean that it’s incapable of producing simple components for weapons.”The two companies have different roles in Russia’s procurement operation. Amegino is a broker, which commissions Chinese suppliers such as ELE to ship goods to Russia from China. The two have worked together: documents secured by C4ADS show that Amegino arranged for ELE to ship $2.7mn of goods to Russia in early 2023.Tsugami has relied on the Chinese market for about 20 years. One person linked to the company estimated there are more than 100,000 Tsugami machines in China out of 200,000 around the world. It is a pool that Moscow has targeted since official vendors of Tsugami machines pulled back from Russia in 2022.“Before the pandemic, Tsugami had tried to take advantage of China’s national strategy to become a manufacturing powerhouse,” said an investment security analyst who has inspected its facilities in China. In 2023, more than 60 per cent of Tsugami sales were in China.But the volume of machines in China is not solely an export control problem posed by Tsugami. Customs records show another Russian company, UMIC, has sourced $2.9mn of machine tools and parts made in countries including Israel, Japan, Korea, Germany, Sweden and Switzerland. In all the cases the equipment was shipped from China and bought in yuan via trading partners based in China. Unlike AMG, UMIC has not been sanctioned by the US. UMIC’s owner, Yulia Karpova, shares a married surname and phone number with Evgeny Karpov, the owner of AMG. She has appeared at Russian trade shows promoting AMG materials on joining AMG-UMIC stalls. In May 2022, after Japan raised its export controls, she was photographed with AMG brochures advertising the range of Tsugami products that AMG claimed it could obtain. UMIC and AMG did not respond to comment. Japan’s trade ministry said it was working with G7 partners to strengthen measures to counter circumvention of sanctions. “While many countries are struggling to deal with second-hand products, Japan is gathering a variety of information including bypass companies,” the ministry said. “We would add them to the sanctioned entity list as needed.”