This week, the UK Government appointed Baroness Margaret Hodge as the country’s new Anti-Corruption Champion, announced significant new funding for the National Crime Agency’s anti-corruption efforts, and introduced additional sanctions targeting the illicit gold trade.
In its press release, the Government stated: “Illicit gold is an assault on the legitimate trade of a valuable commodity, fueling corruption, undermining the rule of law, and entrenching human rights abuses such as child labour. Russia uses illicit gold to launder money and evade sanctions, thereby bolstering Putin’s war efforts.”
Recent research by RAND Europe, Gold Rush: How Russia is Using Gold in Wartime, produced for the Sanctions Directorate of the Foreign, Commonwealth, and Development Office, found that gold has become a vital resource for the Russian state since the full-scale invasion of Ukraine. Gold is now critical to Russia’s most important wartime trading relationships.
Gold has become a vital resource for the Russian state since the full-scale invasion of Ukraine.
Faced with unprecedented economic pressure since its invasion of Ukraine, the Kremlin has shifted much of its international trade into the shadows. Russia’s key revenue-generating exports—oil and oil products—are now transported via a shadow fleet. The country has legalized the illicit (parallel) import of essential goods, instructed businesses on how to trade using barter systems, and accessed high-technology imports through international networks of middlemen and shell companies.
Although gold has long been significant to Russia, its role has grown substantially since 2022. Gold is now considered a strategic resource for the state and plays a key role in Russia’s developing shadow trade. For instance, it has reportedly been used to facilitate payments with Chinese partners, as a medium of exchange for hard currency in Turkey (PDF), and even as payment for drones in Iran. One recent report suggests that Russia continues to export billions of dollars worth of gold through the Eurasian Economic Union, masking its country of origin.
Global demand for gold is at an all-time high, particularly in China, Moscow’s wartime patron, which has become the world’s leading sovereign buyer of gold since 2022. Russia aims to capitalize on this demand by becoming the world’s top gold producer.
However, Russia’s influence over international gold production extends beyond its borders. Russian interests hold significant stakes in the gold industries of several countries of the former Soviet Union and parts of Africa. The Wagner Group alone reportedly (PDF) oversaw the production of several dozen tonnes of gold annually in Africa.
Russian business has traditionally operated between formal and informal spheres, with corruption, criminality, and arbitrary law enforcement deeply embedded in Russian business culture. This has an international dimension, as wealthy Russians have long sought to protect and launder their assets overseas—most notably in the UK, which has faced persistent challenges from Russian illicit finance.
Russian business has traditionally operated between formal and informal spheres, with corruption, criminality, and arbitrary law enforcement deeply embedded in Russian business culture.
Russia’s governance system is built on rent extraction at all levels. Rather than fostering economic growth, the system prioritizes the redistribution of revenues, with key assets allocated to those closest to Putin. In this system, corruption is not incidental but intrinsic. The most important businesses are state-controlled or managed by Putin’s associates, while private entrepreneurs operate under constant threat, keeping a low profile to avoid scrutiny.
However, wartime has altered this dynamic. According to Russian scholar Alexandr Prokhorov, periods of crisis often spark greater entrepreneurial activity in Russia as extraordinary circumstances demand innovative approaches. During the current crisis, Russia’s extensive expertise in operating within the shadows is being harnessed for state purposes. Putin, now heavily reliant on entrepreneurs, is encouraging them to acquire critical goods by any means necessary.
As a result, the illicit trade in precious commodities like gold has become central to Russia’s war strategy. Disrupting these international networks is a vital task for the United Kingdom and its allies as they seek to maintain pressure on Moscow.
– John Kennedy is a research leader in the Defense and Security Group at RAND Europe. Published courtesy of RAND.
