October 24, 2026: Russia has over half a trillion dollars of frozen assets in European countries. The money consists of cash, bonds, and securities held outside Russia, as well as private assets such as yachts and real estate owned by Russian oligarchs (billionaires). About a third of these assets are held by Euroclear, a major financial-market infrastructure firm and securities depository.

Euroclear is concerned that seizing Russian funds will damage its reputation among international investors and could even lead to lawsuits by the affected Russians; Russia's Central Bank is already suing Euroclear for $250 billion. Most NATO nations want Russia to pay for the damages it has caused by invading Ukraine. NATO countries believe the money should be used to rebuild the country.

At the same time, the Ukraine War has bankrupted Russia, and it can no longer pay all war-related expenses. Earlier this year, an attempt to sell a trillion rubles ($11.44 million) worth of government debt failed. No bank, foreign entity, or wealthy Russian oligarch was willing to participate. The Russian budget deficit in the first half of 2026 was $77 billion, driven mainly by war-related expenses. Military expenses for the rest of the year are estimated to be more than $60 billion. Wealthy Russians have noted this and have moved more of their assets into cryptocurrencies and foreign investments. This has forced the government into a risky “pay-as-you-go” approach to funding the war. This method depends on what Russia can get for its sanctioned oil exports. NATO nations are cracking down on the Russian fleet of shadow tankers.

Economic sanctions have made it difficult to export petroleum. This is Russia's main export and a major source of income for the Russian government and its war effort. To evade these sanctions, Russia created a shadow fleet of 112 tankers purchased and/or leased abroad and gained unrestricted access to a Chinese smuggler haven in Hong Kong.

The nations enforcing the sanctions, particularly the United States, have tracked the Russian shadow fleet's routes and noted Hong Kong's key role in moving sanctioned Russian oil to its primary customers in China and India. Hong Kong is also a major source of weapons and munitions for sanctioned nations. A current customer is Russia. Hong Kong does this by allowing Russian tankers and cargo ships, using fake credentials to hide their Russian affiliation, to bring in Russian oil and other raw materials. The Russian ships then leave Hong Kong carrying weapons for their war in Ukraine.

Another major player in the Russian smuggling effort is North Korea. For years, North Korea has been buying small, secondhand cargo and tanker ships and using them for smuggling. A favored evasion technique involves taking on or transferring cargo at sea within its territorial waters. The North Korean merchant fleet has about 134 ships, most of which it bought from Chinese firms.

North Korea is a notorious and persistent maritime smuggler. Because of North Korean smuggling, the United States expanded its maritime smuggling and sanctions enforcement program in 2018 by creating a new multinational enforcement organization. Initial members were the United States, Australia, Canada, New Zealand, Britain, France, South Korea, and Japan. The Enforcement Coordination Cell, or ECC, is enforcing the UN sanctions that curb North Korean smuggling related to items needed for their nuclear and ballistic missile programs. In addition, the ECC allows member nations to enforce other sanctions or naval missions their governments prioritize. The U.S. has since invited India, Vietnam, Indonesia, and the Philippines to join and help monitor growing Chinese violations of offshore water rights, especially in the South China Sea and other areas of the West Pacific.

The ECC concentrates on the 2,000-kilometer-long shipping lane from the Indian Ocean, through the Malacca Strait and the South China Sea, to North Korea. Along this route, not only North Korean-flagged ships participate in smuggling, but also Chinese, Taiwanese, Liberian, and Sri Lankan ships, as well as independent ships that fly whatever flag they believe will keep them from being seized for smuggling, including false flags. Earlier U.S. efforts had already identified many North Korean- and Iranian-owned tankers and cargo ships that were often engaged in smuggling. This led Iran and North Korea to use their own ships less and to use foreign ships instead. These third-party ships are the ones the ECC sought to identify. The ECC can identify these ships and their owners and impose banking and other sanctions on the owners. Many nations outside the ECC, but economic partners with ECC members, will cooperate if a smuggler ship visits one of their ports. In that case, authorities can arrest the captain and impound the ship.

ECC member warships do not rely on inspecting suspicious ships at sea; they rely on confirming who is where and when. This is especially useful for spotting smugglers who often turn off their location beacons and continue running in dark mode. These location beacons transmit the ship's ID and location to nearby ships and, often via satellite, to the owner and international shipping organizations. You can find past and current location data on several public websites. The beacons exist mainly as a safety measure for ships operating at night or in bad weather in heavily used shipping lanes. Smugglers have learned to turn off their beacons near a port where they are assumed to have docked or anchored off the coast, waiting for an available dock.

Some smugglers use spoofing, a form of jamming that modifies the beacon signal to present a false location. This is where warships and maritime aircraft come in, as they can identify ships visually or by radar, then conduct a visual inspection. This is more damaging to smugglers because it provides stronger evidence that their ship was involved in smuggling; with enough evidence, you can pursue the ship owners and seize the ship when it enters coastal waters within 22 kilometers of a nation's land, which can seize outlaw ships. The US also seizes such ships at sea.

There are other problems. Not long ago, Russian leaders, especially the president, were determined to eliminate corruption that had delayed new-weapon procurement and driven prices up. The president's move led to a criminal investigation into the management of the Severnaya Verf shipyard. This yard builds Steregushchy-class corvettes and Admiral Gorshkov-class frigates. But investigators weren't looking into delays on these shipbuilding projects; they were looking into how management took $212 million meant to build the ships and instead used it to shore up a bank in which they held a stake. The bank still went under, taking the $212 million with it. Now the yard lacks sufficient funds to complete the ships the government contracted it to build.

Later, the Russian president grew increasingly critical of the Defense Ministry for delays in spending on new weapons and equipment. This led to finger-pointing and accusations. For example, one of the leading ballistic missile designers told a reporter that missiles could not be built as fast as the government wanted, because the Defense Ministry would not sign purchase orders on time. An official explained to the procurement bureaucrats that some missile components took longer to manufacture and had to be ordered earlier to assemble finished missiles on schedule. But the bureaucrats either didn't comprehend that or didn't care.

Some officials took enormous risks by going public with this, but that's what the Russian president had been calling for. When the President heard of these accusations, he ordered an investigation. But the defense minister said the purchase orders hadn't been signed because prices had risen sharply, and the suppliers wouldn't explain why. Officials had been ordered to root out corruption in the Defense Ministry, and now the defense minister may face a perfect storm of incompetence, corruption, and pressure from above to "make things happen." This isn't the first time the Russian president has had problems with Defense Ministry leadership and senior officers who rose during the Soviet era. The message doesn't seem to be getting through. So the President ordered prosecutors to investigate defense manufacturers' finances, and they're finding a lot of dirt.

James F Dunnigan