Brand new luxury British and European cars are entering Russia despite being banned – here’s how
The Caucasus Mountain range in Georgia is one of the great sights in the south of Europe. Towering peaks, higher than any in the Alps, rise up from green meadows and grassy hills covered in wildflowers. Winding roads thread through deep valleys, overlooked by ornate Orthodox churches and monasteries.
But when I visited recently, I found a sight of an unexpected kind. The roads here have become dominated by a very particular kind of traffic: enormous convoys of trucks, carrying all manner of goods towards Georgia’s northerly neighbour: Russia. When I travelled north towards the checkpoint of Lars – the only road into Russia – I encountered a long queue of trucks waiting to clear customs and pass across.
I had come here in search of an answer to a puzzle that’s been preoccupying me for some time. It began with a chart. This chart showed that after Russia invaded Ukraine and sanctions were imposed by G7 nations, including the UK, the flows of certain goods to that country suddenly cratered, falling to zero. That went for the so-called “dual use goods” you could use to create a makeshift weapon or put into a drone, but also for the luxury goods banned from sale into Russia.
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The theory back then was that by starving Russia’s war machine of the parts it needed and by starving senior Russian businesspeople and officials of the Western luxuries they coveted, European states could cause economic damage even if they weren’t directly at war with Vladimir Putin’s state.
But the data told a subtly different story. While exports of those goods to Russia certainly fell to zero, they suddenly rose sharply to a host of Russia’s neighbours. All of a sudden, Britain was sending drone equipment to Kyrgyzstan; all of a sudden, we were exporting luxury cars to Azerbaijan, in numbers we had never come anywhere close to before. Things got odder when you looked at Azerbaijan’s own export data, which showed a sudden spurt in its own luxury car exports (it does not manufacture luxury cars), to other countries in the Caucasus and Central Asia, including Georgia and Kazakhstan.
This posed a bit of a mystery. While sanctions experts said they suspected these Caucasus states were almost certainly being used as a kind of conduit, to send sanctioned goods to Russia, the data trail went cold when those cars entered the Caucasus. When we first raised this earlier in the year, Britain’s motor lobby group, the Society of Motor Manufacturers and Traders (SMMT), said: “UK vehicle exports to Azerbaijan – as to many countries globally – have increased due to a number of factors, not least a flourishing economy, new model launches and pent-up demand.”
The implication, in other words, was that most if not all the cars stayed in the Caucasus (which would be entirely legal) instead of crossing into Russia (which would not).
A Porsche seen by Sky News near the border
Like the driveway of a Mayfair hotel
All of which is how I found myself in the Caucasus mountains recently to see for myself whether this story really stacked up. We had gone there following a tip-off. A colleague in Georgia had sent us a photo from the border checkpoint, where a set of informal car parks was filled with the kind of concentration of luxury cars you would normally only expect to see outside a Mayfair hotel, or in a country like Dubai. There were Mercedes, high-end Lexus, BMWs and, there among a large number of German cars, two Range Rovers.
So we travelled out to Georgia to find out whether there were really UK-made cars still travelling into Russia. Now in some respects, our focus on cars might seem odd: after all, there are far more egregious breaches of the sanctions regime. Our previous investigation found radar parts and electrical equipment have also been sent from the UK to the Caucasus and Central Asia following the imposition of sanctions.
A Lamborghini and two Mercedes G-wagons
But the reason we were focused on cars is that while there’s no way of telling from the outside what’s inside a cargo truck or a shipping container, vehicles are far harder to move secretly. In short, if we could show that European, and for that matter British cars were being moved into Russia, then it would demonstrate visually, for the first time, how these sanctions are being broken.
We spent two days close to the border, watching the process as cars and other trucks were brought there, and then sent over into Russia. We spoke to numerous men engaged in the trade. What we discovered was a complex but finely-honed system designed to transport European cars into Russia.
A Mercedes seen by Sky News
‘This car will go to Russia and will remain there’
One group of men is charged with bringing the cars to the border – sometimes from showrooms in the capital, Tbilisi, sometimes from the Black Sea ports of Poti or Batumi. Mostly they don’t know where the cars come from beforehand – whether directly from countries like the UK or via other Caucasus states like Azerbaijan.
Once they bring the cars to the border, they leave them there in a set of car parks where they sit for a few days until the necessary paperwork is completed. That paperwork is not without its own complications: after European states imposed sanctions, Georgia introduced its own bans on sending cars into Russia. However, there are numerous loopholes that enable you to bring the cars across nonetheless.
A Porsche waits at the car park
One way is to have the cars registered and custom cleared in Armenia before they come up north to the Lars checkpoint in Russia. Sometimes those taking the cars into Russia are advised to say they are only being driven through Russia to Kyrgyzstan but, as one Russian YouTuber puts it: “Let’s be honest: everyone understands everything perfectly well – everyone from the people who will register you at the traffic police and the people at the Georgian border – that this car will go to Russia and will remain there.”
Either way, eventually these cars are issued with transit registration plates, after which they can be driven over the border. And since Georgians can travel visa-free into Russia, and vice versa, taking the cars across the border is simply a question of driving them there, leaving the car on the other side where it will be collected by another group of men, and then hitching a ride back into Georgia.
Checkpoint at the Georgia-Russia border
Everyone wins – except the Ukrainians
We saw numerous cars being taken across the border in this way, and here’s the key thing about this system: first, no single person in the chain can easily be fingered for any crime – even though, when you put it all together, it certainly amounts to a contravention of sanctions law. Second, and just as importantly for our purposes, it means that the cars don’t show up in the customs data. From the point of view of a statistician, they simply arrive in Azerbaijan or Georgia and then they disappear.
This, we learnt, was only one of numerous routes sanctioned goods are taking into Russia, but such routes are, all told, a large part of the explanation for how Mr Putin is able to keep his regime equipped with the components it needs to wage war, and the luxuries needed to reward his cronies. The upshot is contrary to the promises when these sanctions were imposed: Russia’s economy remains strong, there are no shortages of essential and non-essential goods in Moscow and, along the way, Caucasus states like Georgia and Azerbaijan have seen an enormous economic boost from serving as an informal trade conduit. Everyone wins – except the Ukrainians.
Traffic waiting to cross from Georgia into Russia
But while we saw this process carried out at the border for many German cars – Mercedes and Porsches were the most prevalent brands – we didn’t find the Range Rovers our contact had photographed a few days earlier. They were, presumably, already over the border.
So after a few days we headed south towards Tbilisi to talk to more people in the export trade. But just outside the Georgian capital, we suddenly spotted a convoy of trucks heading in the opposite direction. Among those trucks were two car carriers with what looked like brand new Range Rovers. We turned the car around and began to follow them up the mountain, realising that we were witnessing this shadow trade route in person.
Up until then there had been no clear filmed evidence that British cars are actually leaving the Caucasus for Russia. So we followed the car carriers as they travelled slowly up the mountain roads towards the border.
When we arrived at the border, the atmosphere in the car park had transformed. What had been a quiet place during the day was a hive of activity. Clearly this was peak time – it seemed that most of the car deliveries happened in the dead of night. Not only were there two Range Rovers, there were countless other luxury cars, including top of the range Mercedes G-Wagons and a Lamborghini Urus.
When day broke the next morning, we checked the VIN numbers on the Range Rovers – the numerical fingerprint displayed on the windscreen, allowing you to trace these vehicles. They showed that these cars were brand new, made in Solihull in 2024. A document visible on the windscreen of one of them showed the date of April 2024.
Boxes inside one of the cars
No one is trying to hide what’s happening
Those dates were significant: we at Sky News had warned CAT logistics groups about the existence of this trade in March 2024. Jaguar Land Rover (JLR) and the SMMT had been aware of the risks posed by these vehicles ending up in the Caucasus before these cars had been manufactured. Yet here they still were, en route to Russia, joining the line to cross over the border.
A spokesperson for JLR said: “JLR stopped sales of vehicles to Russia and Belarus in February 2022. Sanctions compliance is a corporate priority, as well as an obligation for our third-party retail network.
“An ongoing investigation into these vehicles has confirmed they were not supplied by JLR to the Georgia market. They were supplied by JLR to retailers in countries that do not share a border with Russia and then in turn sold to customers in those countries, which are subject to similar sanctions and export controls as we are in the UK in relation to Russia.
Makeshift car park full of luxury cars, including Range Rovers, near the border
“JLR, along with its retailer network, continues to adapt its compliance strategies to counter the efforts of third parties seeking to circumvent sanctions against Russia and Belarus.”
However, while UK carmakers and authorities insist they are doing everything they can to clamp down on these unofficial trade routes, perhaps the most startling takeaway from our investigation is that there on the ground in Georgia, no one is trying to hide what’s happening. Everyone knows these high-end European cars aren’t supposed to be going into Russia, yet they are passing over the border one by one, every day. Everyone knows what’s happening, but no one is doing anything to stop it.
And one has to presume much the same thing is happening with all types of goods, including those inside the bowels of the trucks lined up at the border. The passage of these cars is only the most visible evidence that the sanctions regime is not preventing expensive, important items travelling from Europe into Russia. For the time being, policymakers and businesses seem powerless or unwilling to prevent this murky trade.
Business
Rachel Reeves said this flagship policy would raise money – it may end up doing the opposite
What do we do about the non-doms?
It’s a question more than a handful of people have been asking themselves at the Treasury lately.
Politics Hub: Follow latest updates
It had seemed simple enough. In her first budget as chancellor, Rachel Reeves promised a crackdown on the non-dom regime, which for the past 200 years has allowed residents to declare they are permanently domiciled in another country for tax purposes.
Under the scheme, non-doms, some of the richest people in the country, were not taxed on their foreign incomes.
Then that all changed.
Standing at the despatch box in October last year, the chancellor said: “I have always said that if you make Britain your home, you should pay your tax here. So today, I can confirm we will abolish the non-dom tax regime and remove the outdated concept of domicile from the tax system from April 2025.”
The hope was that the move would raise £3.8bn for the public purse. However, there are signs that the non-doms are leaving in such great numbers that the policy could end up costing the UK investment, jobs and, of course, the tax that the non-doms already pay on their UK earnings.
If the numbers don’t add up, this tax-raising policy could morph into an act of self-harm.
Rachel Reeves has plenty to ponder ahead of her next budget. File pic: Reuters
With the budget already under strain, a poor calculation would be costly financially. The alternative, a U-turn, could be expensive for other reasons, eroding faith in a chancellor who has already been on a turbulent ride.
So, how worried should she be?
The data on the number of non-doms in the country is published with a considerable lag. So, it will be a while before we know the full impact of this policy.
However, there is much uncertainty about how this group will behave.
While the Office for Budget Responsibility forecast that the policy could generate £3.8bn for the government over the next five years, assuming between 12 and 25% of them leave, it admitted it lacked confidence in those numbers.
Worryingly for ministers, there are signs, especially in London, that the exodus could be greater.
Property sales
Analysis from the property company LonRes, shows there were 35.8% fewer transactions in May for properties in London’s most exclusive postcodes compared with a year earlier and 33.5% fewer than the pre-pandemic average.
Estate agents blame falling demand from non-dom buyers.
This comes as no surprise to Magda Wierzycka, a South African billionaire businesswoman, who runs an investment fund in London. She herself is threatening to leave the UK unless the government waters down its plans.
Magda Wierzycka, from Narwan nondom VT
“Non-doms are leaving, as we speak, and the problem with numbers is that the consequences will only become known in the next 12 to 18 months,” she said.
“But I have absolutely no doubt, based on people I know who have already left, that the consequences would be quite significant.
“It’s not just about the people who are leaving that everyone is focusing on. It’s also about the people who are not coming, people who would have come, set up businesses, created jobs, they’re not coming. They take one look at what has happened here, and they’re not coming.”
Lack of options for non-doms
But where will they go? Britain was unusual in offering such an attractive regime. Bar a few notable exceptions, such as Italy, most countries run residency-based tax systems, meaning people pay tax to the country in which they live.
This approach meant many non-doms escaped paying tax on their foreign income altogether because they didn’t live in those countries where they earned their foreign income.
In any case, widespread double taxation treaties mean people are generally not taxed twice, although they may have to pay the difference.
In one important sense, Magda is right. It could take a while before the consequences are fully known. There are few firm data points for us to draw conclusions from right now, but the past could be illustrative.
Read more on Sky News:
Reeves warned over tax rises
What is a wealth tax?
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Are taxes going to rise?
The non-dom regime has been through repeated reform. George Osborne changed the system back in 2017 to limit it to just 15 years. Then Jeremy Hunt announced the Tories would abolish the regime altogether in one of his final budgets.
Following the 2017 reforms there was an initial shock, but the numbers stabilised, falling just 5% after a few years. The data suggests there was an initial exodus of people who were probably considering leaving anyway, but those who remained – and then arrived – were intent on staying in the UK.
So, should the government look through the numbers and hold its nerve? Not necessarily.
Have Labour crossed a red line?
Stuart Adam, a senior economist at the Institute for Fiscal Studies, said the response could be far greater this time because of some key changes under Labour.
The government will no longer allow non-doms to protect money held in trusts, so 40% inheritance tax will be due on their estates. For many, that is a red line.
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‘Rachel Reeves would hate what you just said’
Mr Adam said: “The 2017 reform deliberately built in what you might call a loophole, a way to avoid paying a lot more tax through the use of existing offshore trusts. That was a route deliberately left open to enable many people to avoid the tax.
“So it’s not then surprising that they didn’t up sticks and leave. Part of the reform that was announced last year was actually not having that kind of gap in the system to enable people to avoid the tax using trusts, and therefore you might expect to see a bigger response to the kind of reforms we’ve seen announced now, but it also means we don’t have very much idea about how big a response to expect.”
With the public finances under considerable pressure, that will offer little comfort to a chancellor who is operating on the finest of margins.
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