Double-dealing
Authors
White sand beaches, scenic coral reefs, dense green jungle. The exotic islands of the Seychelles, in the heart of the warm Indian Ocean, attract tourists from all over the world. Last summer, Belarusian businessman Siarhei Khvalko's family published a vacation photo from this blissful corner of paradise. They stayed in a luxury Four Seasons Hotel. A room for two adults and three children for a week starts at 10,000 euros. A rare Belarusian household can afford such a vacation. For the Khvalko family, however, this is not a problem.
The Khvalko family in Seychelles. Source: Instagram account of Alena Khvalko, Siarhei's wife
Siarhei Khvalko, a low-profile Belarusian businessman, made his fortune in microchips. It is hard to imagine the modern world without these little devices. Chips are used everywhere in technology, from smartphones to robots. With the outbreak of the war, the European business of Siarhei Khvalko and his partners rapidly took off, and Belarusian companies increased their revenues tenfold.
BUSINESS WITH EUROPE'S MONEY
Khvalko started his electronics trading business in Belarus in 2006, and ten years later, he and his partners Maksim Bohush, Siarhei Sayavets, and Dmitrijs Radkevičs opened a chip factory in neighbouring Latvia.
SMD Baltic's white and grey two-story building is located in Daugavpils' industrial park on the Western Dvina. Within a short period of time, the company became a resident of the Latgale Special Economic Zone, receiving tax benefits. The European Union also supports research and development at the plant.
SMD Baltic factory. Author: Sergey Kuznecov, Radio Latvia
When the Kremlin attacked Ukraine, SMD Baltic publicly condemned the military aggression. It said it would no longer accept orders from Russia and Belarus. However, our investigation revealed that the Latvian factory's Belarusian owners had secretly shipped microchips to the warring country. A whole network of companies is involved in dubious schemes. Among the clients of Belarusian and Latvian businessmen is a prominent Russian drone manufacturer, which has a stake in an innovation fund headed by Vladimir Putin's daughter.
BELARUSIAN CHIPS FOR RUSSIAN DRONES
Three hundred kilometres from the Latvian city of Daugavpils lies the pride of the Belarusian authorities - the Great Stone industrial park, established jointly with the Chinese government. Designed as a platform for establishing high-tech industries, the Special Economic Zone offers comprehensive benefits.
The Belarusian company SMD BY became a resident of the industrial park in October 2021. Its director and principal owner, Siarhei Khvalko, personally signed documents with the head of the Great Stone Park. SMD BY promised to start producing electronic circuit boards in the industrial park.
“The products will be supplied to the EAEU market”, the press release said.
It looks like they have succeeded in their goals.
Siarhei Khvalko (on the right) in Great Stone Park. Source: industrialpark.by
Three months after Russia's treacherous attack on Ukraine, the Belarusian company SMD BY suddenly changed its name to Micromount and, in the fall of the same year, began supplying electronics to Russia.
Kontraktika, a Smolensk-based company owned by Belarusian Vital Khatsuk, purchased the components from the Great Stone Park resident.
Buro has discovered that this businessman is connected to our subjects. Khatsuk used to be employed by the Belarus-based company owned by Khvalko and Bohush, Alsochip. Kontraktika does not disclose to whom it sold Belarusian-made electronics. However, we were able to use the customs data to get a complete picture of Khvalko's and his partners' businesses.
The St. Petersburg group of companies Geoscan has become an essential customer of the Belarusian company Micromount since last year. It is a significant producer of drones in Russia, where 10% is owned by an Innopraktika-branded fund run by Putin's daughter, Katerina Tikhonova.
Customs records show that from July 2023 through June 2024, Micromount supplied Geoscan with various electronic components valued at $1.2 million, including programmable logic controllers. Western countries have banned such goods from entering Russia because they are essential to the Kremlin's military industry.
Geoscan is under Ukrainian and US sanctions as a manufacturer of drones used in the war against Ukraine. In 2021, a Russian company revealed plans to establish an unmanned drone cluster in Bashkortostan. Subsequently, the republic's prime minister announced the delivery of drones produced there "for the SMO".
This year, Geoscan, in collaboration with Roscosmos, successfully conducted a trial of the technology to control drones via satellite. According to reports, a satellite communications system called Gonets has the potential to be used in the war against Ukraine.
In addition to Geoscan, Micromount, the Belarus-based company, also provided electronics to Reglab, an Ekaterinburg firm. The company is part of the Prosoft-Sistemy group, which, before the war, enjoyed a close working relationship with Uralvagonzavod, a prominent Russian tank manufacturer.
Following Re:Baltica's briefing to the Latvian Chamber of Commerce and Industry (LCCI) chairman, Jānis Endziņš, he promptly investigated whether SMD Baltic was a member of their organisation. The head of the LCCI ensured this was not the case and then emphasised that if all of the above is true, such actions are criminal, which is law enforcement's field of action.
"The success of Russia's invasion of Ukraine should not be supported in any way, and everything should be done to ensure that Ukraine wins. Logically, we should not strengthen Russia in any way", said Endziņš.
He highlighted that the LCCI even excludes members who continue to export goods to Russia that are not of strategic importance to the army, as the organisation views this practice as unethical.
TO RUSSIA, WITH LOVE
These are not all Khvalko and his partners' "achievements". They have also been involved in a major scheme to ship American microchips to Russia to evade sanctions.
The SMD Baltic plant in Latvia shipped about half of its products to Russia before the invasion of Ukraine. In 2020, 12,000 chips valued at $188,000, and in 2021, 66,000 chips worth $1.16 million. The only recipient of the cargo was a Smolensk-based middleman, the Novaya Elektronnaya Kompaniya (NEK), which Khvalko, Bohush, and Sayavets then controlled.
This deal was jeopardised by the treacherous attack on Ukraine and the subsequent Western sanctions against the Putin regime. The US and EU banned chip shipments to Russia in the fall of 2022. Western countries classify chips as a particular category of goods with a higher risk of being illegally supplied to support Putin's war machine.
"These are items of the highest concern due to their critical role in the production of advanced Russian precision-guided weapons systems, Russia’s lack of domestic production, and limited global manufacturers", the US government said in the statement.
Microcircuit manufacturing. Source: invest.latgale.lv
In the fall of 2022, direct deliveries from the Latvian plant to Russia were discontinued. But by the time the sanctions were imposed, Novaya Elektronnaya Kompaniya had already devised new ways to supply critical components to the warring Russia, circumventing the restrictions. NEK purchased chips through Kazakhstan, Turkey, China and Hong Kong companies. These jurisdictions are often used to circumvent Western restrictions. In 2023, NEK imported more than 300,000 chips worth $1.3 million.
Notable US companies, including Intel, Texas Instruments, Analog Devices, and others, are listed as chip manufacturers. However, the country of origin is predominantly China, Malaysia, the Philippines, and Thailand. Due to their extraterritorial effect, these goods are still subject to US sanctions.
"Any goods with US inputs fall under US export controls no matter where they are manufactured and by whom because of the Foreign Direct Product Rule", Benjamin Hilgenstock, a senior economist at the Kyiv School of Economics and a member of the international working group on sanctions against Russia, explained in a commentary for Buro.
Novaya Elektronnaya Kompaniya is not the only company involved in a massive sanctions evasion scheme. Siarhei Khvalko has a company registered in the Minsk district called SkyGlobal.
We learned that it also supplied Russia with over 230,000 chips of Western brands worth $1.5 million last year. The Bulat company is listed as the recipient of the chips in the customs declarations. It is controlled by Rostelecom and the Elvis Research and Production Center, which are under US sanctions.
Texas Instruments and Analog Devices commented that they did not do business with the above-mentioned company that supplied American chips to Russia.
"TI stopped selling products into Russia and Belarus in February 2022. Any shipments of TI chips into Russia are illicit and unauthorised. Texas Instruments (TI) strongly opposes using our chips in Russian military equipment and the illicit diversion of our products to Russia", Texas Instruments said in response to the Buro's request.
However, American microchips can enter Russia illegally. To prevent such shipments, US companies implement various control measures with law enforcement, government agencies, non-governmental organisations, and industry partners.
"Combating the unauthorised resale, diversion, and misuse of products and technologies is a challenge the entire semiconductor industry faces. We continue to look for ways to identify and prevent third-party attempts to engage in unauthorised resale, diversion, or misuse of our products and technology", Analog Devices stated in their response.
Maksim Bohush and Siarhei Sayavets declined to comment. Siarhei Khvalko told Buro that currently (sic!), the companies controlled by him and his partners do not cooperate with either the drone manufacturer Geoscan or the communications equipment manufacturer Bulat.
"We don't work with anything related to war. This is our principled position", Khvalko noted.
However, the businessman did not answer whether they had cooperated with Russian companies in the past.
"I understand that you need sensation, but the fate of people is at stake. <...> Let's say a factory there [in Daugavpils] gets closed. There's a young woman on the staff with a husband working in the concrete factory. They have three children. Where will they go? We're all well aware of that. There are some moral considerations", Khvalko replied.
By shipping Western chips to Russia to evade sanctions, Khvalko and his associates made more than $2.5 million. Electronics supplies for a significant drone manufacturer totalled more than $1.2 million. Thanks to the shady deeds of businessmen, the financial indicators of Belarusian companies have significantly improved. Last year, SkyGlobal's revenue grew 70 (!) times to $13 million. Micromount's revenue grew 12-fold (!), reaching $14 million.
Belarusian businessmen can now spend their "hard-earned" money on European trips. According to social media posts, the Khvalko family vacations in Italy, France and Greece. The Bohgush family has lived in Portugal for a long time.