How a Russian arms maker targets unknowing Canadian companies to get around sanctions

A Russian defence contrac‐ tor sought to acquire elec‐ tronics from two Canadian companies in a broader plan to skirt international sanctions and make weapons for the war in Ukraine, according to a leaked intelligence cache provided to CBC News.

Activist hackers who call themselves the Cyber Resis‐ tance and are linked to secre‐ tive sections of the Ukrainian government, exfiltrated data from the email account of an employee at St. Petersburgbased arms company Special Technology Center (STC), a supplier of unmanned aerial vehicles and weapons to the Russian war effort in Ukraine.

The cache contains inter‐ nal STC documents, company emails, contracts worth mil‐ lions of rubles and target lists of electronics made in the U.S., United Kingdom, China, Canada, Switzerland and Sweden, among others, that are needed to make their ar‐ maments.

According to a senior of‐ ficer in the Ukrainian mili‐ tary with direct knowledge of the hacked materials, the hackers provided them with the information from STC.

"It has a huge value be‐ cause we understand the Russians still produce high technological equipment," he said. CBC News has agreed to withhold his identity to pre‐ vent against threats from Russia.

At the outset of the fullscale invasion in 2022, Cana‐ da and its allies immediately imposed extensive sanctions against the Russian military industrial complex, including STC, making blanket bans on the export of microelectron‐ ics to Russia.

But the cache provides in‐ sights into how Russian arms makers source those tech‐ nologies, normally unassoci‐ ated with the business of war, from unknowing West‐ ern companies.

STC did not respond to a request for comment from CBC News about its pursuit of sanctioned technologies in Canada and abroad.

Russian supply lists re‐ vealed

In a June 2023 email ex‐ change, the hacked STC em‐ ployee discusses with a col‐ league a target "list of manu‐ facturers" and an attachment with a spreadsheet of specific electronic components the employee needed to acquire for what the Ukrainian mili‐ tary believes to be for the production of Orlan unman‐ ned aerial vehicles.

Considered one of Russi‐ a's most important military assets, the Orlan-10 model made by STC, is capable of cellular jamming enemy troops and gathering target‐ ing and geolocation data for artillery barrages and missile strikes.

Named at the very top of that 2023 STC supplier list is EXFO, a Montreal-based tech company that has been noted by Prime Minister Justin Trudeau's office and says it has been a contractor for the U.S. Department of Defence. The component tar‐ geted on the list is a model of the Power Blazer, an EXFO multiservice test module. A separate Excel file shows a breakdown of the STC pro‐ curement plan that says the company was seeking two other pieces of testing equip‐ ment from EXFO.

According to a company spokesperson, Russia is on a list of countries EXFO is ban‐ ned from working with. But the spokesperson did say the tech firm can't control if its products end up in those countries.

"EXFO also has no visibil‐ ity to any potential alternate means of supply via other entities or countries."

EXFO was also clear that the Power Blazer model could not be used as a com‐ ponent inside a drone or ve‐ hicle, but did not elaborate more about its potential mili‐ tary applications.

Another spreadsheet in the cache focusing on "for‐ eign-made components" as‐ sociated with drone tech‐ nology, lists resistors, transis‐ tors and capacitors made by global heavyweights like Texas Instruments and Pana‐ sonic, as well as a DC-DC power converter made by lit‐ tle-known Aimtec, a Mon‐ treal-based electrical parts manufacturer.

And it isn't the only men‐ tion of that company that STC is seen pursuing in the hacked cache.

A series of 2022 emails with a sales representative at Compel, a Moscow-based semiconductor company, shows the same STC em‐ ployee buying 10 Aimtec DCDC converters, using the ar‐ ms manufacturer's front company, SMT-iLogic.

"Please invoice SMTiLogic," said the STC em‐ ployee to a Compel represen‐ tative, while providing a deliv‐ ery address in St. Petersburg. "10 pieces."

More emails from 2023 show Compel advertising other Aimtec products to the STC employee, but the em‐ ployee doesn't appear to re‐ spond to buy more compo‐ nents. Aimtec is also men‐ tioned in a separate disclo‐ sure, where some of its elec‐ tronics were found inside Russian equipment by a Ukrainian government agency.

In a statement to CBC News, Aimtec said their pro‐ ducts are not meant for mili‐ tary or aerospace applica‐ tions and that they ensure all of their buyers comply with international export stan‐ dards.

"Aimtec mandates all its distributors to respect U.S.Canada Trade Compliance Regulations," said the com‐ pany in a statement, adding that it strictly follows all U.S. and Canadian national secu‐ rity export regimes.

Russian companies cir‐ cumventing international bans is a well established problem.

How exactly STC ulti‐ mately obtains Western parts from unwitting companies like EXFO and Aimtec in‐ volves a murky supply chain that exploits the use of front companies and distributors in Russian-allied countries to shield the sale of what ap‐ pears, on the surface, to be the peaceful purchase of tech products.

Late last year, two Russian operatives were caught using a Brooklyn-based front com‐ pany to help STC and other Moscow-backed companies to obtain electronics for its drones. STC is also known for its connections to the GRU, Russia's military intelligence agency, after aiding it in the hack of the Democratic Na‐ tional Committee in 2016.

The pro-Ukrainian hackers who stole data from STC also helped expose a Cuban mer‐ cenary network that was pro‐ viding Russia with fresh man‐ power for the war.

"The last portion of infor‐ mation we received is that, unfortunately, Russia still uses different proxy com‐ panies, different proxy possi‐ bilities, to overcome the sanctions from the Western countries," said the Ukrainian military officer.

WATCH | How does Rus‐ sia skirt sanctions? A Ukrainian officer explains:

Global Affairs Canada spokesperson Jason Kung maintained that Ottawa had already imposed heavy sanc‐ tions against Russia since the full-scale invasion began in February 2022, noting that new bans were made on all microelectronics that qualify as "military and dual-use goods and technology."

Kung pointed out that contravening Canadian sanc‐ tions is illegal, and both com‐ panies say they are fully com‐ pliant. There is nothing to suggest their parts have been knowingly provided for the production of STC pro‐ ducts.

Corporate needed: expert

Olena Bilousova, a senior research analyst at the Kyiv School of Economics who coauthored a report earlier this year on Western components in Russian weapons, ex‐ plained that the murky, inter‐ national networks that com‐ panies like STC rely on to source electronics are not im‐ possible to dismantle.

She says it begins with Western governments hold‐ ing companies responsible if one of their distributors de‐ fies sanctions and sells to an compliance

intermediary in another country that then passes the component to Russian arms makers.

"They should make their companies more responsible for not only conscious sup‐ plies, but also unconscious supplies."

Bilousova says if govern‐ ments investigate companies found to be trading with fir‐ ms known to be violating sanctions, it would force those companies to build better internal compliance policies.

She told CBC News the supply chain also greatly benefits from an embold‐ ened China aiding its Russian ally.

According to Bilousova's analysis, many of the compo‐ nents sent to Russia pass through China.

Bilousouva suggested Canada should expand its sanctions list to target thirdparty companies in other countries that are acting as middlemen for Russia.

"Chinese component enti‐ ties should be sanctioned," she said. "Canada can imme‐ diately sanction every com‐ pany which is already sanc‐ tioned by other [allies and] coalition countries."

There is evidence in the cache of intermediary com‐ panies acting on behalf of

STC in the global market‐ place.

An August 2022 contract between STC and a Saint Pe‐ tersburg-based shipbuilding company, one of the alleged front companies buying parts for STC abroad, spelled out that there were buys for "for‐ eign components" from "the countries that applied sanc‐ tions against the Russian Federation," acknowledging its role in the scheme.

From the beginning of its invasion of Ukraine, the Kremlin and its intelligence agencies were seeking out everything from microchips to tank engine parts from sanctioned countries.

Zelenskyy casts doubts on sanctions

This is not the first time that Russia was singled out for obtaining western sup‐ plies for its range of Orlan drones.

In 2023, the Royal United Services Institute published thorough study on the black market network that STC uses to import Western goods, making it clear that the "leadership of STC is largely composed of highly accomplished Russian mili‐ tary scientists" heavily linked to both the FSB, Russia's for‐ eign intelligence service, and the GRU.

In January, at the Davos World Economic Forum, Ukrainian President

aVolodymyr Zelenskyy cast major doubts on the effec‐ tiveness of Western sanc‐ tions.

"In every Russian missile there are critical components from Western countries," he said, noting that though he was grateful for Western sanctions, they only work if countries ensure they work 100 per cent.

"Putin loves money above all," Zelenskyy told a mixture of world leaders and busi‐ ness elites.

"The more billions he and his oligarchs, friends and ac‐ complices lose, the more likely he will regret starting this war."