Russia scolds China for second-hand machine tools

The Kremlin is scouring China for second-hand machine tools, using a shadowy network of buyers in the Kremlin's race to secure equipment vital to ramping up arms production.

Moscow's secret strategy for obtaining precision equipment, uncovered by researchers, seeks to circumvent increasingly restrictive Western sanctions and export controls aimed at stunt production for the military.

The operations, run through a network of opaque companies, tap a stock of old high-end machine tools made by Western companies that remain in China after being sold to local factories for decades.

The Center for Advanced Defense Studies (C4ADS), a Washington-based think-tank that has identified the shadow trade, said Moscow's claims about the complex sourcing system for high-precision equipment produced in Russia were likely “exaggerated”.

Allen Maggard, C4ADS analyst who leads Machine Tools ReportRussia's arms manufacturers are “jumping to increase their production capacity using whatever they have available,” he said.

One procurement network, identified by C4ADS and verified by the Financial Times, is based around a Moscow-based company called AMG, a Russian military supplier that the United States placed under sanctions last year.

Since Russia's invasion of Ukraine in 2022, AMG has increased imports of computer numerical control (CNC) tools made by Tokyo-based Japanese machine tool maker Sugami. CNC tools are essential for defense industry work because they allow automated high-precision, high-speed manipulation and metal milling.

Public filings show that AMG, a company that develops weapons systems for Russia, including ballistic missile defense systems, jet weapons and missile systems, has contracted to obtain machine tools for Cometa, according to the sanctions list.

Sugami machines are marked for use in various military facilities. Then-Russian Defense Minister Sergei Shoigu was shown on state television in March in front of a Tsugami machine at a factory in Altai, which makes parts for cruise missiles.

Customs documents show that AMG bought about $600,000 worth of Tsugami equipment in 2021 from an official Japanese supplier. After the attack, purchases increased to $50 million in 2023, with all of the proceeds coming from two shady middlemen.

The first supplier Amegino is a US-authorized supplier based in the UAE, whose website is primarily hosted on servers in Russia. According to the corporate intelligence agency Diligencia, it is owned by Andrey Mironov; No other details are available on Mironov's background.

The second is ELE Technology, which fraudulently presents itself as “a division of Gray Machinery Company,” a US machine tool distributor.

ELE's website — which appears to be lifted from the actual Gray Machinery website — claims it has a warehouse in Illinois and offers a lift from Chicago O'Hare Airport to potential customers. The site claims that Glenn and Jared Gray, two experienced US CNC tradesmen, are members of their team.

But the ELE technology is actually located 7,800 miles away in Shenzhen, China. Glenn Gray, whose full biography and photo is posted on the ELE website, told the FT he knew nothing about the company.

Website registrations and old promotional materials suggest ELE is run by a Chinese electronics businessman named Benson Zheng. Zeng did not respond to requests for comment.

Sugami told the FT it did not supply any products directly to ELE. According to the ELE website, it is currently selling two second-hand Sugami machines manufactured in 2001 and 2005.

“We're seeing decades-old machine tools being imported into Russia,” Maggard said. “This speaks to the lack of compliance in the second-hand market, not to mention that manufacturers are unlikely to care where their products end up after they are sold.

“Just because a machining center is two or three decades old does not mean it is incapable of producing common components for weapons.”

The two companies have separate roles in procurement operations in Russia. Amegino is a broker, which commissions Chinese suppliers like ELE to ship goods from China to Russia. The two worked together: Documents secured by C4ADS show that Amgino arranged for ELE to ship $2.7 million in goods to Russia in early 2023.

Sugami has depended on the Chinese market for almost 20 years. A person connected to the company estimated that there are more than 100,000 Sugami machines in China, out of 200,000 worldwide. This is a pool that Moscow has targeted since the return of official sellers of Sugami machines from Russia in 2022.

“Before the pandemic, Sugami tried to take advantage of China's national strategy to become a manufacturing powerhouse,” said an investment protection analyst who visited its facilities in China. In 2023, more than 60 percent of Sugami's sales were in China.

But the amount of machines in China is not the only export control issue raised by Sugami. Customs records show that another Russian company, UMIC, sourced $2.9 million in machine tools and parts made in countries including Israel, Japan, Korea, Germany, Sweden and Switzerland. In all cases the equipment was shipped from China and purchased in yuan through trading partners located in China.

Unlike AMG, UMIC has not been approved by the United States. UMIC's owner, Yulia Karpova, shares a married surname and phone number with AMG's owner, Evgeny Karpov.

He has attended Russian trade shows to promote AMG materials, joining the AMG-UMIC stall. In May 2022, after Japan lifted its export controls, he was photographed with AMG brochures advertising Sugami products that AMG claimed it could obtain.

UMIC and AMG did not respond to comments.

Japan's trade ministry said it was working with G7 partners to strengthen measures to counter sanctions. “While many countries are struggling to deal with second-hand goods, Japan is collecting various information including bypass companies,” the ministry said. “We will add them to the authorized entity list if necessary.”