Russia could become the world’s largest market for illegal IT

Russia could become the world’s largest market for illegal IT technologies and equipment following the country’s recent decision to allow parallel imports and encourage local businesses to use systems even without proper permission.  

The recent exodus of many global IT companies from Russia, prompted by the country’s invasion of Ukraine and subsequent international sanctions, resulted in local companies only being able to continue to use technology from these companies until the expiration of their licence period.  

As Russian companies often purchase licences for just one year, and less often for two or three years, they may soon face serious problems in using their IT system. The situation is complicated by the fact that most Russian companies, primarily large and medium-sized ones, have traditionally used IT products from Western suppliers as a basis for their IT architecture.  

But in recent weeks, some Russian corporate users have faced the problem of renewing their licences for foreign IT products.  

Perhaps the most complex situation involves Russian companies using equipment and technologies supplied by global giants such as Cisco and IBM.  

According to experts writing in Russia’s Vedomosti business paper, the biggest concerns are over specialised server equipment based on IBM Power microprocessor architecture, which is traditionally used to store and process large datasets.  

Such systems are traditionally in high demand among large Russian companies in various sectors of the national economy.  

For example, Russia’s flagship air carrier, Aeroflot, had plans to buy such equipment at the beginning of 2022, but after Russia’s invasion of Ukraine on 24 February, the company was forced to change its plans.  

IBM Power currently accounts for 10% of the Russian server market. 

In the case of Cisco, the company was mainly represented in the Russian market by its network equipment, used mainly by large organisations and telecommunications enterprises. Its customers included Rosseti, Russia’s largest power company, and Rosgeologia, the country’s major state holding in geological exploration. Both Russian companies were unavailable for comment. 

The exodus from Russia of global IT suppliers and the suspension of their supplies to the local market means that the only way their former local partners can continue using their products could be via parallel imports.  

In this scenario, deliveries of IT products to Russian companies can be carried out without the usual permissions.  

So far, the Russian government has allowed parallel imports into its IT sector, leading some local analysts to predict that Russia could become the world’s largest market for illegal IT systems. 

But despite some potential benefits from parallel imports, the implementation of such a scheme will probably not completely solve the Russian industry’s problems, because without licensing and regular servicing, equipment could quickly become vulnerable to hackers. 

If licences are needed to activate equipment, it means companies will have to “hack” it. But even after this, according to most analysts, using such equipment will be unsafe for organisations, because of the serious potential risk of data leakage and hacker attacks. 

Also, any users of such equipment will face legal disputes with rights holders – although probably without any repercussions for them in Russia – and will not have an opportunity to conduct any upgrades required for these systems. Another option for activating equipment when bypassing licensing procedure may involve the use of special activation keys, although these could be blocked by the original equipment manufacturers.  

Another major problem with parallel imports is the high cost of delivering products – the final price could be 70-100% higher than analogue equipment supplied via traditional schemes – as well as a serious risk of supplies failure. Finally, there is a high risk of counterfeit products being supplied under the guise of genuine equipment.  

Because of the risks associated with the parallel imports scheme, many Russian companies are now thinking about legally bypassing existing restrictions. This could involve activating equipment and technologies in certain third countries before they are delivered to Russia.  

Many companies are considering various routes for the delivery of equipment and technologies, including Dubai as a re-export destination, with the purchased equipment sold on to CIS countries such as Armenia and Kazakhstan, and then to Russia. But the final cost of products delivered in this way may be several times the standard price.