Ukrainian customs reform; thermobaric drones; and Fath-360 countermeasures

BLUF: We explore the customs reforms making their way through the Ukrainian legislature, as well as how FPV drones with thermobaric munitions are performing in the field. And: Ukrainian countermeasures to Russian-held, Iranian-made missiles, the Fath-360.

THE BIG STORY: How customs legislation working through the Rada will affect miltech

The miltech sector is can be dramatically affected by customs rules, particularly around import/export regulations, transparency and corruption issues — all of which are key factors in how Western investors do business in Ukraine. 

Now the Rada is planning to reboot the Ukrainian customs service with new legislation. The draft law 6490 was initiated by Ukrainian MPs, who are planning for reforms that extend out to 2030.

Danylo Hetmansev, chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, described key changes to Counteroffensive Pro:

• election of a new head of customs in an open competition with foreign specialists and organizations;

• reassessment of all customs service workers in the 18 to 36 month period after the election of new chairman. They will be tested on knowledge of laws and integrity;

• the commission will check for complaints against employees;

• introduce the possibility of rotating customs officers between positions;

• raise the level of salaries;

• and monitoring the lifestyle of customs workers.

Hetmansev said that they are hoping to make the customs service more independent and to decrease the level of corruption. 

WHAT’S NEXT FOR THE NEW LAW? On April 11, MPs voted for 6490-D in its first reading, with 237 votes supporting it – a clear majority of deputies. Now they are preparing for a second and final round of voting. On September 2, MPs received a spreadsheet comparing the old version of draft law with the new. The next vote should occur in the next two weeks, before October. A new head of customs will be elected in early 2025.

The committee on Finance, Taxation and Customs Policy, Business, and NGOs are in support of adoption of the new law. The International Monetary Fund (IMF) considers reform of Customs as a key step to keep working with Ukrainian government.

HOW NEW LAW WILL AFFECT UKRAINIAN MILTECH: Andrii Butin, senior researcher at The Institute for Economic Research and Policy Consulting, told us that one of the problems is a lack of transparency in some of the customs rules. 

Some importers might not know about all the regulations. And customs can interpret rules subjectively, demanding different forms of documentation. That’s why products can be delayed at customs for long periods of time.

For now, there are four common problems with documents:

• absence of permission from State Export Control Service of Ukraine;

• absence of documents of state or non-state expertise on the classification of goods as military and/or dual-use goods;

• absence of documents confirming the possibility of applying for customs duty exemptions;

• absence in the customs declaration of codes of goods.

Butin said that the new procedure of electing the head of customs will not solve all the problems, including subjective interpretation of rules. And in the context of a labor shortage, it will be challenging for the government to recruit independent professionals for the customs service.

The Ukrainian budget loses $2.5 to 3 billion per year because of ineffective procedures on customs, according to Danylo Hetmantsev. Defense companies are also facing the problem with delays while importing dual-use or military products.

A reform of customs requires much more work than it seems at first glance. Government should also reform the judiciary and law enforcement branches of power.

Customs rules should be transparent, and nongovernment organizations should have an influence on customs, by conduct surveys among businesses on satisfaction with customs services and to facilitate solutions. 

Ukraine is facing a challenge to fight a war and reform institutions at the same time. But a key solution is continuing reforms to make customs more understandable for Ukrainian defense companies.

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BUSINESS LUNCH TOPICS: What our reporting shows!

1. QUICK PRIMER: FATH-360 MISSILES FROM IRAN, by Sebastien Roblin.

Iran has sold to Russia 200+ Fath-360 tactical ballistic missiles. An Iranian MP confirmed the sale was made for soy/wheat, which the FT reports was delivered via the Caspian Sea. Iran’s foreign ministry denied the transfer.

The Fath-360 has a range of only 75 miles. Its short range means its launchers may be exposed to counter-strikes, especially if longer-range strikes into Russia are authorized by the West in retaliation.

Still, Fath-360 poses a threat to frontline positions and cities. Once launched, tactical ballistic missiles are only reliably downable by specialized air defense systems—Patriot, S-300V and French-Italian SAMP/T—unlikely to be risked close to the border/frontline.

The 5-meter-long Fath-360 reportedly lands within 30m of target on average, using satellite navigation (or GNSS), and is hardened against spoofing (misleading fake satellite signals) due to its complementary inertial navigation system (INS). 

COUNTERMEASURES: There are two known Ukrainian systems developed 2014 to 2022 with GNSS-interference capability: Proximus’s Bukovel-AD, which can suppress GNSS signals out to 15-20 kilometers, and the reactive NOTA perimeter jamming system with 20 kilometer range.

Prior to 2022 Ukraine’s arms export agency also advertised the heavier 4.3-ton Bukovel-CPR trailer-based EW system with a range of 350-400 km, and the 12-kilo ING-4317 (range 60 km) specialized in spoofing, able to simulate 32 satellites, swamping the signals of the real ones. 

Last winter, Ukraine also debuted a national-level Pokrova spoofing system that has had successes misleading Shahed drones and cruise missiles.

2. DETECTION OF RUSSIAN DRONES/MISSILES BY SOUND: Ukrainian company Zvook is in process of adoption into service with Ukrainian Ministry of Defense. The device is able to identify Russian Shahed drones and other missiles by its sound. Developers are using machine learning to teach a program to recognize the sound of a drone and missile and also to triangulate its movement.

Inside each of these boxes are a microcomputer with software. For now, the Zvook network involves more than 200 devices throughout Ukraine.

3. FPV-drones are now set to burn Russian positions on the frontline with thermobaric ammo. Operators of FPV-drone ‘Hlib’ and ’Jack’ (call signs) tell Counteroffensive Pro that the new type of payload is extremely effective. With it, you can burn ammo and Russian troops, as well as positions. Hlib added that there is no need to change the construction of the drone itself, just a special type of ammo.

Jack explains: ‘Imagine a deodorant can, and you're holding a lighter to it. Essentially, that's the same concept. The first explosion disperses a cloud, and the second one detonates that cloud. It's highly effective against bunkers and infantry inside them. It burns everything.’ Apparently, Russians are now starting to use the same method as well.

ON THE MOVE: Professional movement, promotions and industry news.

• ‘Ukroboronprom’ has a new head - Oleh Hulyak. Previously he was a head of the logistics forces of the AFU.

• The Ministry of Strategic Industries is now headed by Herman Smetanin, who previously headed ‘Ukroboronprom’. He is a young specialist whose career was built at defense plants in Kharkiv and Lviv.

• Olena Semenchuk leaves the Ukrainian company Kvertus, which produces EW devices. She was a Chief Marketing Officer and worked for them from June 2023 to July 2024. Now she begins work in a startup, which produces different land drones. She declined to tell us the company name. 

• Anatolii Khrapchinskii founded the Defense Media Center — a platform for miltech companies communicating with media.

• Sergiy Koshman join Frankenburg Technologies as the managing director in Ukraine. The main focus will be on building and deploying critical capabilities. Previously, Sergiy Koshman led international cooperation and partnerships at Brave1.

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MUST READS:

• The U.S. federal government proposed required reporting on AI developers, to ensure that technologies are safe and can withstand cyberattacks. It would require 'red-teaming' on whether AI technologies have dangerous capabilities. 

• Ukraine has the capacity to double drone production, but it needs funding from allies, President Zelenskyy said. 

• Ukraine and the US are working on the replacement of Soviet air defense systems S-300 and air-to-air missile P-27. Possibly, countries will develop a new anti-aircraft missile for old launcher S-300.

• Ukraine resumes production of ammunition for small arms 5.45x39 and 5.56x45 calibers. After occupation of Luhansk in 2014, ‘Ukrobornprom’ lost its only ammunition plant.

• The Ukrainian company Besomar presented a fixed-wing UAV interceptor to shoot down Russian drones. It can climb to a height up to 4 kilometers and has a range of 50 to 60 km.

• Russians are producing a new kamikaze drone known as the ‘Garpiya-A1’ with Chinese engines and parts, Reuters reports. IEMZ Kupol, a part of Almaz-Antey, is responsible for production of new drones.

• Armenia gave several of its air defense systems to Ukraine, according to Azerbaijani media. Transfer includes: S-300, ‘Buk’, ‘Tor’, ‘Osa’ and even the Soviet-made tactical ballistic missile ‘Tochka’. 

• Ukrainian company Athlon Avia announced new UAV ‘Furiya A2-C’. Technical details are not public for now, but flying time increased to 6 hours.

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