HONG KONG—It took the promise of access to contraband, an FBI front company and help from Fiji, but they got their man: U.S. investigators, in a tricky sting operation, picked off a supplier of parts Moscow needs for its war in Ukraine.
The smuggler, Maxim Marchenko , was sentenced in July by a New York court to three years in prison for his role in procuring military-grade electronics for Russia.
The Americans missed their ultimate goal, however: More than seven months after Marchenko’s arrest, his network was still in business, continuing to feed Russian companies with ties to its military, according to research and a review of trade and procurement data by C4ADS, a Washington-based global security nonprofit.
The prosecution of Marchenko cast light on the extent of U.S. efforts to enforce sanctions that were imposed after Russia invaded Ukraine nearly three years ago. It also showed how difficult it is to stanch the flow of equipment to Russia through China, which the U.S. accuses of helping Moscow sustain the military production it needs to continue the war.
The Biden administration has imposed Russia-related sanctions on more than 300 people and entities in China, including at least 75 in Hong Kong, freezing assets and restricting their ability to do business. But the trade continues to flow, aided by entities such as Marchenko’s companies in Hong Kong, a shipping hub where the leadership readily denounces Western sanctions.
Between August 2023 and December 2023, Hong Kong companies shipped to Russia more than $750 million worth of microchips and other goods that Moscow needs in its military campaign , according to a July report by the Committee for Freedom in Hong Kong Foundation, a Washington-based rights group.
Russia, with its domestic war supplies dwindling , relies on foreign help for its offensive in Ukraine—most recently in an alliance with North Korea, which has given Moscow thousands of troops and boosted arms shipments .
Hong Kong’s role as a transshipment point for Russia-bound goods is backed by Chinese policy: Beijing rejects what it calls unilateral sanctions imposed by the U.S., in part because those restrictions often target Chinese entities and officials, a group that includes Hong Kong’s leader, Chief Executive John Lee . Hong Kong closely follows Beijing’s lead .
“Wheeling and dealing is in Hong Kong’s DNA,” said Joseph Webster , a senior fellow at the Atlantic Council who researches China-Russia ties. “Beijing is certainly aware of the trade conducted via Hong Kong, but they are doing virtually nothing to stop it.”
A route to Russia
Marchenko, who hails from Moscow and is now 53 years old, worked in Hong Kong for more than a decade, running mostly electronics-trading businesses out of a small office in the crowded Sham Shui Po district.
“Good fortune to my home,” reads a red Chinese card still hanging from what was his office door in a commercial building near a famed Hong Kong electronics market.
Marchenko’s social-media accounts show an interest in thrash metal—he visited the Philippines to see the band Slayer—and drinking beer in Hong Kong pubs. He posted little that could be construed as political except for an occasional dad joke: “If USA is so great then why did someone create a USB?”
Among his companies was one he started with his wife, Diana Izutkina , importing caviar, cheese and candy from Eastern Europe to Hong Kong.
Izutkina called Hong Kong an ideal environment for doing business. “Everything is done to ensure the ease of starting a company,” she said in a 2019 interview with Russian state television.
The item that put Marchenko on the FBI’s radar was a small digital display manufactured by eMagin, a company based in New York. The microdisplays use organic light-emitting diodes for very thin and compact devices. They can be used in military equipment including aircraft helmets, targeting screens, thermal scopes and night-vision goggles.
The company, eMagin, isn’t named in court documents but is the only such manufacturer listed in Dutchess County, the location of the company identified in the documents. The company didn’t respond to requests for comment. A spokesman for the U.S. Attorney’s Office in New York’s Southern District, which handled the prosecution, declined to comment on the case.
Months before the Russian invasion of Ukraine in February 2022, Marchenko used one of his companies in Hong Kong—Neway Technologies—to deliver to a Russian electronics company more than $250,000 worth of displays from the New York company, according to an indictment in the U.S. case. He stated the devices were for use in rescue kits by a Russian state civil-defense organization.
After the invasion, the U.S. imposed unprecedented sanctions on a large number of companies and individuals, while the Justice Department launched an interagency program, Task Force KleptoCapture, to enforce sanctions and break up procurement networks such as Marchenko’s.
After February 2022, eMagin told its staff to no longer send devices to Russia or companies that would transfer them to Russia, prosecutors said.
Marchenko then used another of his companies, Alice Components, to continue the trade. In July 2022, the company attempted to order 2,000 displays from eMagin for more than $1 million, saying they would be used for medical equipment in Asia.
An eMagin representative told Marchenko’s company that, for “compliance-related reasons,” it couldn’t fulfill its order, refunding its money, according to the indictment—and directing Alice Components to a distributor.
The distributor was in fact a front run by the FBI. From them, Alice Components ordered 2,450 displays at a price of $1.6 million.
Between December 2022 and February 2023, Marchenko used two companies in Hong Kong to pay the distributor nearly $1.3 million. But the FBI front told Marchenko that the shipment had been held up over concerns that the goods would go to Russia. Scrambling to find a way to acquire the displays, Marchenko suggested sending them in batches with a listed value under $2,500, so that there would be no need to report their final destination.
The undercover agents offered an alternative: Meet in Fiji.
The Fiji option
Marchenko checked the customs regulations of the South Pacific island nation and determined “nobody will check there,” prosecutors said.
In mid-September 2023, Marchenko and his wife boarded the 5,000-mile flight from Hong Kong. His last Facebook photos show a Fiji Airways plane at Hong Kong International Airport, then a walkway at Fiji’s main airport, with staff wearing the country’s distinctive kilt-like sulus.
While meeting with undercover agents in Fiji, Marchenko said that one of the people he was working with was based in Russia and that the microdisplays were intended for hunting rifles, prosecutors said.
When an agent asked him about the risk that the microdisplays would end up on the battlefield in Ukraine, Marchenko said they wouldn’t be used in the war, but “lasers were available and so they could take care of the serial numbers,” according to court documents.
After a meeting in a Fiji hotel, Fijian police stormed the room and arrested Marchenko and his wife, Izutkina told state-controlled media outlet Russia Today. He was extradited to the U.S., while she was held for five days before being sent back to Hong Kong.
“Maxim is an ordinary entrepreneur who carries out his activities in full compliance with the requirements of the law,” she added. The case against him was “not only terrible and inhumane, but also absurd.” Izutkina didn’t respond to requests for comment.
Moscow protested Marchenko’s arrest in Fiji. The Russian Foreign Ministry called it an example of “unlawful application of the principle of extraterritoriality of the American justice.”
In the end, Marchenko pleaded guilty to charges of smuggling and money laundering. His lawyers didn’t respond to requests for comment.
The future of the U.S. sanctions regime targeting Russia is uncertain. President-elect Donald Trump used sanctions extensively against Iran during his first term, but said during his recent campaign that such tools should be applied judiciously. He has said he would bring an end to the war in Ukraine even before taking office. Easing sanctions could be part of any deal to stop the fighting.
Even with Marchenko in custody, his network continued to move products to Russia. Court documents in his prosecution list two unnamed co-conspirators, including one who was operating from Russia.
In April 2024, the last month for which figures are available before a Russian clampdown on detailed trade data, Alice Components delivered nearly $220,000 worth of telecommunications equipment seen by the U.S. as critical to the Russian war effort.
The equipment was shipped via Dongguan, a manufacturing hub in mainland China near Hong Kong, to Radiofid Systems, the same company to which Marchenko delivered eMagin microdisplays shortly before Russia’s invasion.
In August, the U.S. State Department said sanctions had been imposed on Radiofid and Alice Components, noting that as recently as the preceding January there had been transactions on what it called “Maxim Marchenko’s illicit procurement network.”
Write to Austin Ramzy at austin.ramzy@wsj.com
