Top Tips for Sanctions Compliance and Preventing Sanctions Evasion

By: Michael Ruck, Petr Bartoš, and Helen Phizackerley

On 24 September 2024, the G7 released updated guidance on the prevention of evasion of export controls and sanctions imposed on Russia.

This blog provides an overview of the guidance and the firm’s top tips for sanctions compliance and preventing sanctions evasion:

1. Understand Russia’s diversion tactics and adopt appropriate measures to limit the risk of illicit procurement efforts

All parties of the supply chain need to be aware of the diversion tactics which may potentially be utilised by Russia and should implement measures to mitigate such risks.

Examples of steps taken by Russia, as detailed in the G7 guidance, include the following:

• Authorising federal agencies to seize Russian assets owned or managed by foreign persons from “unfriendly states”.
• Requiring certain organisations to offer the Russian Federal Security Service unrestricted access to their resources for monitoring purposes.
• Allowing Russian parties to maintain access to foreign intellectual property without the consent of the trade mark holder.
• Restricting dividend transfers to foreign bank accounts by anyone from “unfriendly states” and imposing requirements that payment only be in Russian rubles to a specific account at a Russian bank.

2. Familiarise yourself with the Common High Priority List (CHPL)

The CHPL highlights items that pose the highest risk of illegal diversion to Russia owing to their significance to the Russian war effort. Close attention should be given to any systems and controls in supply chains to ensure such goods are not diverted or re-exported to Russia.

See here for the full CHPL.

3. Recognise the red flags

Corporates and individuals should be alert to the following red flags:

• Sudden changes in business activity (in particular if this occurred after the Russian invasion of Ukraine).
• Inaccurate, missing or false information.
• Suspicious client connections.
• Last-minute changes to parties involved.
• Payments from entities located in third countries not involved in the transaction.
• Reluctance from clients to provide certification that it will not sell to sanctioned parties.

The above is not intended to act as a fully comprehensive list.

4. Enhance due diligence when red flags are identified

It is specifically advised that businesses do the following upon encountering any red flags:

• Check those involved against applicable sanctions lists.
• Check the parties against information provided by nonprofit organisations that identify high-risk companies.
• Inquire with the counterparty about the context of any shipment, with respect to the end use, end user, and ultimate country of destination for the item.
• Conduct internal research into the counterparty (and other entities involved in the transaction).
• Include contractual provisions in distributor agreements to require all distributors to impose increased due diligence measures and comply with relevant sanctions regimes.

Businesses should then assess whether to refrain from the transaction.

Conclusion

It is more important than ever to bolster efficient processes and procedures that prevent such potential illicit practises. In doing so, companies will also decrease any risk of finding themselves in a position where they may facilitate prohibited activities and possibly violate sanctions prohibitions.