Avoiding sanctions: Takeaways from AP's report on a secret deal between Russia and Vietnam
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8:53 PM on Thursday, September 18
By DAVID RISING
BANGKOK (AP) — Russia is a key supplier of military goods to Vietnam, providing it with fighter jets, tanks and ships. Moscow's ongoing war against Ukraine, however, has given rise to international sanctions and the United States, European Union and others are threating more unless Russia relents.
Internal Vietnamese documents obtained by The Associated Press reveal that Hanoi and Moscow have prepared for this possibility, establishing a complex system through which Vietnam can conceal its payments to Russia for defense goods by avoiding any open transfers of cash through the global banking system.
Here are some takeaways from AP's report:
The system established last year uses Vietnam's profits from joint oil and gas ventures with Russia to pay for defense goods bought on credit from Moscow.
Final details of the mechanism were laid out in a 2024 memo obtained by the AP from the Vietnam Oil and Gas Group, known as Petrovietnam or PVN, to Vietnam’s Ministry of Industry and Trade ahead of a visit to Hanoi by Russian President Vladimir Putin.
Under the system, Vietnamese profits from the Rusvietpetro joint venture in Siberia are sent to Moscow to pay back credit extended for military purchases. Vietnam’s profits exceeding the loan repayments are then transferred to Russian state-owned oil and gas company Zarubezhneft in Russia. And finally in Vietnam, Zarubezhneft uses its joint venture company there to transfer an equal amount of money to PVN, effectively avoiding any international financial transfers.
The system has been put in place at a precarious time when the U.S. is trying to strengthen ties with Vietnam as a bulwark against growing Chinese assertiveness in Southeast Asia, and has ongoing trade negotiations after the White House imposed 20% tariffs on Hanoi, while at the same time President Donald Trump is threatening even more stringent sanctions on Moscow.
The European Union has also added a raft of new sanctions to pressure Putin to end the war, and Trump recently issued an executive order doubling tariffs on India to 50% to pressure New Delhi to stop buying Russian oil and military equipment, which he said was helping enable the war against Ukraine.
The AP obtained the documents related to the mechanism from a Vietnamese official who said that he was part of a faction opposed to closer ties to Russia at the risk of jeopardizing the growing relationship with Washington. He provided the documents on condition of anonymity to protect himself from possible reprisals from Vietnam’s authoritarian government.
The U.S. State Department refused to comment specifically on the documents or the payment plan designed to skirt American sanctions, referring comments to the Vietnamese government. It reiterated broadly, however, that “our sanctions remain in place.”
Vietnam’s Ministry of Industry, PVN and the Foreign Ministry did not respond to multiple emails seeking comment on the payment scheme. Russia’s Finance Ministry, which conducted the negotiations for Moscow, also did not respond.
Experts say the mechanism is probably not needed to avoid sanctions that are in place right now, but indicates the two countries are exercising an abundance of caution by putting a system in place to avoid possible future secondary sanctions - sanctions that could be put in place on companies and governments that deal with sanctioned Russian entities.
The main threat of secondary sanctions comes from the Countering America’s Adversaries Through Sanctions Act, or CAATSA, measures adopted during Trump’s first term, which make it possible to impose sanctions on countries or people with commercial dealings with Russia’s military-industrial complex.
“If you want to insulate yourself from any kind of risk, you then basically avoid cross-border transactions and create these kind of offsetting payment schemes,” said. Ben Hilgenstock, a senior economist at the Kyiv School of Economics who is an expert on Russian sanctions and analyzed the Vietnamese documents for the AP.
PVN’s general director, Le Ngoc Son, spells out the concerns in the June 11, 2024, document that outlines the agreement, writing that: “In the context of the U.S. and Western countries imposing sanctions on Russia in general and removing Russia from SWIFT in particular, this payment method is considered relatively confidential and appropriate because money only circulates within the territory of Vietnam and Russia and Vietnam does not have to worry about the risks of being affected by the U.S. embargo.”
