Parallel economy

When Moscow resident Zoya, 62, was planning a trip to Italy to visit her daughter last August, she saw the perfect opportunity to buy the Apple Watch she had long dreamed of owning.

Officially, Apple does not sell its products in Russia.

The California-based tech giant was one of the first companies to announce it would exit the country in response to Russian President Vladimir Putin’s full-scale invasion of Ukraine on February 24, 2022.

But the week before her trip, Zoya made a surprise discovery while browsing Yandex.Market, one of several Russian answers to Amazon, where she regularly shops.

Not only was the Apple Watch available for sale on the website, it was cheaper than in Italy.

Zoya bought the watch without a moment’s delay.

The serial code on the watch that was delivered to her home confirmed that it was manufactured by Apple in 2022 and intended for sale in the United States.

“In the store, they explained to me that these are genuine Apple products entering Russia through parallel imports,” Zoya, who asked to be only referred to by her first name, told Al Jazeera.

“I thought it was much easier to buy online than searching for a store in an unfamiliar country.”

Nearly 1,400 companies, including many of the most internationally recognisable brands, have since February 2022 announced that they would cease or dial back their operations in Russia in protest of Moscow’s military aggression against Ukraine.

But two years after the invasion, many of these companies’ products are still widely sold in Russia, in many cases in violation of Western-led sanctions, a months-long investigation by Al Jazeera has found.

Aided by the Russian government’s legalisation of parallel imports, Russian businesses have established a network of alternative supply chains to import restricted goods through third countries.

The companies that make the products have been either unwilling or unable to clamp down on these unofficial distribution networks.

Russia’s full-scale invasion of Ukraine prompted an international backlash that, by some estimates, resulted in the country becoming the most sanctioned in the world.

Russia also experienced a huge voluntary exodus of brands, comparable in scale only to the boycott of South Africa that was credited with hastening the fall of apartheid.

More than 1,300 companies announced they would exit Russia or curtail their operations there, according to a tally by the Yale School of Management.

Russia’s economy, however, has weathered the pressure campaign better than expected and there is a growing acknowledgement that the expectations sanctions would bring Moscow to heel were misplaced.

Russia’s gross domestic product (GDP) declined by only 2.1 percent in the first year of the war, according to the International Monetary Fund (IMF) – compared with a predicted 8.5 percent contraction – and has been growing ever since.

Russians’ real disposable income decreased by just 1 percent compared with 2021, according to an analysis by the Brussel-based think tank Bruegel, less than the decline seen during the COVID-19 pandemic.

At least initially, imports took a considerable hit.

According to estimates by Brugel, the value of all imported goods fell by half in the first four months after the invasion compared with the four months prior.

But since then, imports have made up much of that lost ground. For all of 2022, imports fell by only 8 percent, according to Russia’s central bank, although independent researchers have estimated a sharper decline of 15-16 percent.

In 2023, imports reached 99.7 percent of pre-war levels, according to the Russian central bank.

The Russian economy’s unexpected resilience has been due, in part, to alternative supply chains.

In late March 2022, as the scale of the corporate exodus from Russia became clear, Moscow legalised parallel imports - the import of products without the permission of the trademark owner.

Parallel imports are not banned under international law and are allowed by some countries for certain goods, including Japan and the United Kingdom.

“More commonly, it is used to ensure supply of essential medicines but here, Russia has expanded its lists to more commonplace consumer goods”, Justine Nolan, the director of the Australian Human Rights Institute at UNSW Sydney, told Al Jazeera.

The case of Apple, whose products in many cases fall under Western sanctions, provides a typical example of how Russia’s parallel imports regime works in practice.

Russia’s largest retailer of Apple products, re:Store, closed for several months "to assess the situation" following the tech giant’s exit.

When re:Store reopened in September 2022, the retailer had changed its name to Restore: and expanded its range, selling not only Apple products but also hairdryers, gaming consoles and smart home appliances from other manufacturers.

Restore: does not go to great lengths to hide its use of unofficial supply chains.

When Al Jazeera called Restore:’s technical assistance line posing as a customer, a customer service representative said it sold genuine Apple items sourced from China and Dubai.

“After the sanctions were imposed, suppliers found ways around and continued essentially uninterrupted shipments”, the customer service representative told Al Jazeera.

He speculated, without providing evidence, that producers were aware that their products continued to be sold in Russia but turned a blind eye to the practice.

Smaller players, including individual sellers, are also involved in the supply of Apple products.

Yandex.Market, where Zoya bought her Apple Watch, lists hundreds of iPhones being sold by numerous registered retailers, some of whom promise to deliver orders in as little as two hours.

Zoya bought her watch from a company called IDstore, which offers a wide variety of Apple goods, including computers, smartphones, watches and cables, for sale.

IDstore was registered in November 2022 and has a single employee, according to Rusprofile, a website that aggregates data from official registries.

On WhatsApp, an IDstore representative told Al Jazeera that the company delivers goods to Russia from India, Malaysia, the United Arab Emirates, the United States and Europe, but declined to elaborate further.

Restore: did not reply to emailed requests for comment.

Customs records show how new players emerged to supply customer-facing businesses after official distribution channels shut down.

Before the war, Russian subsidiaries of Apple, Samsung and Electrolux were almost exclusively responsible for importing their products.

But since February 2022, only about 1 percent of shipments have gone through these official channels, according to customs data.

Instead, the vast majority of Samsung, Apple and Electrolux products have been imported by dozens of little-known Russian companies and individual entrepreneurs.

Most of the shippers named in Russian import data are incorporated in jurisdictions that have not joined sanctions against Moscow, including the UAE, China and Hong Kong.

Al Jazeera approached several of the biggest suppliers of Apple products identified in custom records posing as a potential wholesale buyer from Russia.

Three companies responded to email inquiries, expressing interest in selling to Russia despite sanctions. Two of those later stopped their communications without providing details about their businesses.

“We are actually selling directly on Russian marketplaces ourselves,” a sales manager at BMG International, a company registered in Dubai, told Al Jazeera.

“But we are also interested in establishing new channels with new clients. We can supply Samsung, Apple, and many other brands”.

On its website, BMG International claims that it is an “authorised distributor for numerous well-known brands, including Apple, Samsung, Xiaomi, Nokia, Realme, Oppo, Honor, JBL, gaming consoles, and many more”.

According to a price list for Apple products provided to Al Jazeera, BMG International sells smartphones produced for use in India, China, Japan, and the Middle East.

“But most of the devices, if not all, are made in India”, the sales manager said.

He said his company gets smartphones produced “for Arabic countries” directly from Apple and devices produced for other countries from affiliated companies.

He said that receiving payments directly from Russia might be problematic because banks in Dubai “are now asking too many questions and can reject the payment”.

To get around this, he said, he uses intermediaries to accept payments on his behalf – to avoid problems with his bank.

“We can introduce you to our partners in Moscow, you can send the payment to them in a Russian bank and they send money to us here,” he said.

“They will take a commission, of course.”

When directly approached by Al Jazeera, BMG refused to provide a comment.

Apple products are by no means an exception.

In Russian supermarkets, popular food brands such as Coca-Cola, Lipton, Lindt, Geisha, Tchibo and Pringles are still displayed on shelves despite officially exiting the country.

Russian shoppers can still clean their toilets with Bref and wash their clothes with Persil detergent.

L’Occitane cosmetics are being sold under a new Cyrillic name at the French brand’s former stores in Russia, which were sold to a local buyer after the invasion.

Other popular beauty brands such as Syoss, Schwarzkopf and Chanel - all of which officially pulled out of Russia - are sold openly in major cosmetics chain stores.

Some categories of goods appear to have been affected by the brand exodus more than others.

After car brands including Mercedes, BMW, Rolls Royce, Nisan, Kia and Ford exited Russia, auto sales in the country fell by 59 percent in 2022, according to the Association of European Businesses.

While sales began to recover in 2023, Chinese manufacturers’ share of the market rose to about 50 percent, compared with less than 10 percent before the invasion.

Meanwhile, the average price of a new car rose by 17 percent in 2023, according to the online marketplace and analytics provider Auto.ru.

Major brands such as Audi, Mercedes and BMW continue to be on sale at large auto dealers like Rolf, albeit sometimes at inflated prices.

Rolf did not respond to an emailed request for comment.

Other products are just a click away online.

Valentina, a pensioner from Russia’s Kaluga region, bought a Lego set for her grandson on the Russian online marketplace Ozon after briefly considering picking one up on a visit to neighbouring Latvia.

"The price is the same and they'll even deliver the item right to your door,” Valentina told Al Jazeera.

Valentina bought her Lego set from Griffin Technology, a company registered in Saint Petersburg in 2011.

While primarily a computer wholesaler, Griffin Technology operates more like a general retailer on Ozon, selling everything from electronics to toys and cosmetics, according to customs data provided by Import Genius.

Griffin Technology last year received at least 12 shipments of Lego products from a Hong Kong-registered company, Union Computer Supplies Limited.

Griffin Technology could not be reached for comment. Union Computer Supplies Limited did not respond to a request for comment.

While less prominent in customs records, firms incorporated in the European Union, which imposed some of the toughest sanctions on Russia, are also among the suppliers of goods.

One of the biggest suppliers of Lego, which is readily sold on Russian online markets such as Ozon despite officially leaving the country, is a company registered in Poland, Bilax.

When approached by an Al Jazeera journalist posing as a customer, a company representative said his main business was to transfer goods from Western Europe to Eastern Europe and Central Asia.

“We have continuous relationships with our clients in Russia and we are on the side of business in this conflict,” he said.

He connected Al Jazeera to a company based in Russia, Kids’ Times, where a sales manager claimed to have access to almost any item of Lego “through their partners based in Europe”.

In a statement to Al Jazeera, Bilax said that the company “has never traded Lego” and provides only logistical services for third parties.

Lego said in a statement to Al Jazeera that it has “taken steps to increase visibility and control over any potential resale activity by retail partners which includes adding a clause to existing retailer contracts prohibiting existing retail partners from supplying to Russia”.

Businesses outside Russia willing to supply sanctioned goods directly to Russian customers are not difficult to find.

Styleout Watches and Jewellery, a jewellery store in Dubai that sells Rolex and other premium watches, told an Al Jazeera journalist posing as a buyer that it was “more than happy” to deal with a Russian client and had “lots of them”.

Rolex announced a boycott and ceased supplies to Russia after the Ukraine invasion and its watches are considered luxury goods under EU and US sanctions, although the UAE has not joined sanctions against Moscow.

When approached directly by Al Jazeera for comment, a representative said the company did "not need marketing or advertisement” and refused to discuss the matter further.

Kiv.Kz, a wholesaler in Kazakhstan that sells household appliances, said it also had many clients from Russia, some of whom make bulk purchases of goods that are not officially available in the country due to sanctions.

“You can come and buy the whole truck,” a company representative told Al Jazeera in a phone conversation.

Customs data shows that products are being imported into Russia through unofficial channels on a large scale.

All goods that enter Russia, whether through official distribution channels or as parallel imports, must be declared to customs, which records information including the name of the shipper, the consignee and the quantity of the shipment.

While customs data does not formally distinguish between imports based on whether they were authorised by the manufacturer, importing companies that have no official relationship with the manufacturer are an indication of parallel imports.

In the weeks after the invasion, shipments of iPhones to Russia virtually ceased.

Only about 200kg (440 pounds) of the devices - the equivalent of about 400 iPhones - were imported into Russia in the first three months after the invasion, according to Russian import data provided by Import Genius, compared with about 200 tonnes in January 2022 alone.

By summer, shipments began to slowly recover. But imports never returned to pre-invasion levels, peaking at about one-third of that amount at the end of 2022, before declining again over the following six months.

“Apple stopped selling products in Russia in March 2022 and there’s been no change since then”, Apple told Al Jazeera in a statement, declining to comment on unofficial distribution channels.

Products produced by Apple’s competitor, Samsung, which also announced a suspension of exports after the invasion, followed a similar pattern, with shipments effectively stopping in April before recovering significantly by the end of 2022.

In January 2022, about 351 tonnes of Samsung devices were imported into Russia, according to customs data, compared with only 19kg (41 pounds) in April.

By October, shipments rebounded to about 135 tonnes, before again going into decline during 2023.

“Samsung does not operate retail stores in Russia. Shipments to Russia remain suspended,” the South Korean tech firm told Al Jazeera in an email.

In the case of at least one major brand, imports appear to have recovered to pre-war levels.

Swedish appliance manufacturer Electrolux, which in September 2022 announced it would exit Russia completely, saw shipments of its products decline sharply throughout 2022, from about 1,600 tonnes in January to just 184 tonnes in September.

But by May 2023, shipments topped pre-war levels at some 2,000 tonnes, before again plunging sharply.

Electrolux expressed surprise at customs records appearing to show its products continuing to flow into Russia, mainly from Chinese suppliers.

A company spokesperson said the data suggested that Electrolux-branded products were being made and exported by unaffiliated firms without permission.

“According to our data, we had no product exports to Russia during 2023, and we have procedures in place to confirm those numbers,” the spokesperson told Al Jazeera.

“Based on the information you provided, we can conclude that the products have not been manufactured by Electrolux, nor exported to Russia on our behalf. We do not manufacture these product categories in China, and we have not given consent to any supplier to export Electrolux-branded products to Russia. Thus, the import is a completely unacceptable, unauthorised use of our brand."

Other Western brands readily available in Russia denied any involvement in supplying goods to the country and pointed to their efforts to maintain control over their supply chains.

“Audi has not been supplying cars directly or knowingly indirectly to Russia since March 2022. There is currently no licensed importer for the import of vehicles in Russia. We do not accept grey market imports of cars or original Audi parts to Russia,” Audi told Al Jazeera in a written statement to Al Jazeera.

Mercedes said it had taken measures to ensure control over the sale of its vehicles.

“We have installed intensive awareness and control measures in our global dealer network to minimise the risk of potential sanctions circumvention,” a Mercedes-Benz spokesperson told Al Jazeera, explaining that such measures included audits of authorised partners.

A number of companies, including German firms Tchibo and Henkel, told Al Jazeera that they have limited means to prevent parallel imports.

Coca-Cola said its ability to address the issue is “limited by regulatory factors linked primarily to free trade within the Eurasian Economic Union”, an integrated single market made up of Russia, Armenia, Belarus, Kyrgyzstan and Kazakhstan.

Finnish food company Fazer, which owns Geisha chocolate, reiterated that it had permanently left Russia.

“According to the information that we received during spring 2023 from Finnish Broadcasting Company YLE, the products still sold in Russia have entered the Russian market via Finland and Estonia, and they have been transported by private Russian citizens. Unfortunately, it is impossible for us to stop the trade when it comes to isolated cases,” the company told Al Jazeera in a statement.

“Fazer exports some small amounts of products to Central Asia but there are no such sudden increases in these amounts, which could imply that products actually end up in Russia through these channels. If we detect that there is a customer who actively and professionally exports products, then we will intervene.”

Other brands identified in this story did not respond to requests for comment.

In an analysis published in December, researchers at the Kyiv School of Economics found that customs data showed the “robust efforts” of many companies to “maintain their commitments and ethical standards”, and that companies that announced their complete exit from Russia had significantly reduced direct shipments of goods to the country.

However, in some cases, a brand’s exit appears to have been largely ceremonial.

While L’Occitane no longer directly supplies its Russian partners, the French brand continues to be imported to Russia in significant quantities.

L’Occitane’s former Russian subsidiary now belongs to local management. But the subsidiary has pledged shares to L’Occitane International as collateral and L’Occitane International has a call-option to buy the subsidiary back during a five-year period starting in June 2025.

L'Occitane's former subsidiary receives its cosmetics almost exclusively via one company, Smart Beauty LLC - a contrast from the typical scenario involving parallel imports, where numerous small suppliers are involved.

Smart Beauty LLC was registered in Dubai in June 2022 - the same month L’Occitane announced its exit from Russia - and has shipped more than 900 tonnes of cosmetics to Russia, according to customs data.

Dubai’s business registry does not show the identity of Smart Beauty’s owner. L’Occitane did not reply to Al Jazeera’s questions about whether it was aware of the importation of its products by its former subsidiary.

Tracing the supply chains of goods from a factory where they are produced to the shelf in Russia can be challenging as importers may use numerous intermediary companies across multiple countries.

The owner of a Russian wholesale supplier of electronics who spoke on condition of anonymity told Al Jazeera that many front companies have been established in third countries specifically to organise parallel imports, sometimes by Russian importers and sometimes even by the brands themselves.

“Front companies established by brands would hardly speak to a new player whom they don’t know or answer an email inquiry,” he said.

“But the relationships between brands and retailers have been developed through years. It’s very tempting to use proxies and continue business.”

Western brands that have distanced themselves from Russia can be broadly categorised into three groups, said Mikhail Burmistrov, the director of the Russian think tank Infoline Analytics.

“There are those who left and actively try to prevent parallel imports,” Burmistrov told Al Jazeera.

Burmistrov said he is aware of Western companies that have threatened to blacklist Russian partners over their use of parallel imports, although he declined to name any firms.

“Then, there are those who turn a blind eye to the issue. Finally, there are those who continue actively trading with Russia through intermediaries, effectively facilitating parallel imports themselves”.

While boycotting Russia was a voluntary decision for most companies, producers of so-called luxury goods have additional legal perils to consider under US and European sanctions.

Luxury goods are defined broadly, including cars with a market value of more than 50,000 euros, home appliance hairdryers, washing machines and refrigerators worth more than $750, and smartphones worth more than $300, among other items.

While violating sanctions is a criminal offence in many countries, enforcement is generally country-specific. Any company registered in a jurisdiction that did not impose sanctions, such as the UAE or China, is not legally bound to comply with another country's restrictions.

The US, owing to its outsize influence over the global economy, offers an exception with its practice of imposing secondary sanctions.

Under Washington’s sanctions regime, companies registered anywhere in the world are at risk of being blacklisted if they are deemed to be helping Russia evade sanctions.

Some human rights advocates argue that manufacturers are responsible for the sale of their products, whether sold with their approval or not, under the United Nations Guiding Principles on Business and Human Rights.

"Companies are responsible for how their products are being used. It’s crucial for companies to make sure that they are not causing or contributing to adverse human rights impacts related to their operations. They should seek to prevent or mitigate the adverse human rights effects," Ella Skybenko, a researcher at the London-based Business & Human Rights Resource Centre, told Al Jazeera.

Skybenko said that companies should carry out enhanced due diligence and put in place mechanisms to identify suspicious orders from third parties.

“For instance, if the order is unusually large, a producer can start asking questions,” she said. “I know some companies require their customers to testify that their goods would not be shipped to Russia.”

Mechanisms for holding companies accountable, however, are limited, apart from The International Criminal Court, and only address the most direct examples of harm, such as where their components are used in weapons used to target civilians.

Ukraine’s National Agency on Corruption Prevention (NACP) maintains a database of foreign components reportedly found in Russian and Iranian weapons in Ukraine, listing thousands of items from dozens of countries including the US and many members of the EU.

Among the companies named in the database are household brands including Bosch, Hitachi, Canon and LG.

Bosch told Al Jazeera that it “instituted and maintains policies and procedures reasonably designed to meet and achieve regulatory compliance requirements, applicable export control laws and regulations."

"It is our goal to prevent Bosch products from being used in a way that violates sanctions at the end of the direct or indirect supply chain within our sphere of influence,” a spokesperson said.

Other companies named in the database did not reply to Al Jazeera.

While the sale of goods with military applications can breach clear ethical and legal lines, ordinary consumer products occupy a more ambiguous space.

The aim of corporate exodus should not be “to punish the population for what their government is doing”, Skybenko said.

“But by staying, [companies] will inevitably contribute to the war economy. Either indirectly by paying taxes that go to the war budget or directly because of the mobilisation law, they [are] obliged to help the Russian government with [the] mobilisation effort”.

Skybenko acknowledged that corporate boycotts may also have unintended consequences, such as funnelling those who lose their jobs into the army.

“It’s a complicated matter. [Each company] has to look at harms versus benefits and exit responsibly,” she said.

For many Russians, though, the corporate exodus is not a question of ethics or human rights, but quality of life.

Vladislav is an entrepreneur in the Russian city of Rostov-on-Don, about four hours' drive from Ukraine's Mariupol, much of which has been destroyed by Russian forces.

Despite Rostov-on-Don’s proximity to the front lines, the situation in the city is relatively calm.

When carmakers began announcing their exit from Russia, Vladislav, who has more than 10 years of experience selling used cars, realised that there would be a spike in demand and used his industry contacts to find “trusted partners in Western countries and establish supply chains”.

Vladislav estimates that his company sells about 500 cars per year, including models from BMW, Mercedes, Kia, Lexus and Volkswagen.

"We have access to markets in South Korea, the USA, Europe, the Arab Emirates and China. We can bring in almost any cars that people desire," Vladislav, whose surname is being withheld due to safety concerns, told Al Jazeera in a phone interview.

Vladislav said his company works with brands that “on paper” have officially left Russia.

"Legally, they are not involved, but they are well aware that their cars are coming into Russia. For the most part, they turn a blind eye. We don’t talk about politics. Business relationships - that’s what’s important”.

Vladislav, like other businessmen who spoke to Al Jazeera, declined to talk about his supply chains in detail.

"Russian business does everything possible to fill the gap. For many,  this is an opportunity to carve out their niche in the market," Natalia Zubarevich, a professor at Moscow State University and an expert in regional socioeconomic development, told Al Jazeera.

“The market cannot be empty if you can profit from it.”

Still, the Russian market has changed in some ways since the invasion.

"Supply chains are now longer, goods become more expensive,” Burmistrov from Infoline-Analytics told Al Jazeera.

Burmstrov said that consumers have not seen the true impact of higher prices because the Russian government has provided low-interest subsidised loans to support parallel imports.

But he expects parallel imports to decline over time - and not because of international pressure.

“Without marketing and advertisement budgets, the demand for brands will reduce naturally,” he said.

“Russian businesses are trying hard to get the market share left by Western companies, and in many segments, [the] Chinese are the real beneficiaries.”

Margarita, a manager of a bar in Moscow, said the exit of alcohol brands such as Pernod Ricard and Brown-Forman from Russia had hurt her business.

“Suppliers of alcohol in a bar are usually chosen not only based on the assortment available but also the availability of advertising budgets," Margarita, who asked to be identified by her first name only, told Al Jazeera.

“Budgets come in two types: marketing and listing. Marketing budgets pay bars for branding their interior. Listing is when you mention the alcohol brand name in the bar’s menu – for instance, when a cocktail bears the name of a certain alcohol brand”.

Departing brands ultimately also means a reduction in the advertising budgets on which many establishments depend.

“‘Well, what can I say, we now serve different alcohol, that is cheaper, brands are less known,” Margarita said.

“It’s sad, but we continue working.”

For many Russians who spoke to Al Jazeera about their experiences since the invasion, the corporate exodus has been tolerable.

“In the beginning, it was very unusual to see all the stores closed in the mall. But I am now buying the same brands online,” Guzel, a resident of the central Russian city of Kazan, told Al Jazeera.

“Yes, it is less convenient, you cannot try things on before buying, but that’s a minor problem.”

Daria, an entrepreneur in Moscow who asked to be referred to by only her first name, said she was not bothered by the minor inconveniences stemming from the exit of Western brands.

“The real cause of my everyday anxiety is people in military uniform on the streets of Moscow, the state of war with a neighbouring country, and oppressive laws that were implemented for the last two years that forbid me even to call it a war. So the reason brands left - that’s what bothers me, not the consequences,” Daria told Al Jazeera

For the manager of a large dairy company who spoke on condition of anonymity, business has continued largely unscathed.

“Our production has only grown for the last two years. Of course, there are challenges. For instance, our company was an exclusive dealer of an American agriculture machinery brand, and since it announced the suspension of shipments, there is no legal way to buy their tractor[s] in Russia,” the manager, whose company has farms across Russia, told Al Jazeera.

“But the lifespan of a tractor is more than 10 years, so the effect would not be immediate. Yes, there are risks and we are taking steps to mitigate them”.

As for ethical concerns, the manager said her conscience is undisturbed.

“We have 220,000 cows in Russia. Whatever we think about the war and invasion, what choice do we have? We must continue working and find solutions to overcome everyday difficulties,” she said.