On September 24, 2024, the G7 nations published, for the first time ever, joint guidance on preventing Russian export control and sanctions evasion (the "Guidance") to restrict Russia's access to critical technologies and military material.
The Guidance targets deceptive tactics by Russia to bypass sanctions and export control restrictions such as conducting procurement via third countries and legalizing parallel imports. Therefore, it remains critical for companies to maintain robust due diligence requirements and take steps to ensure employee awareness of potential sanctions evasion red flags.
Three Pillars of the Guidance are:
1. A Common High Priority List
A Common High Priority List, ("CHPL,") identifies 50 tariff lines that pose a heightened risk of diversion to Russia. The CHPL includes integrated circuits, Computer Numerically Controlled ("CNC") machine tools, and other electronic components used in Russian weapons systems which are critical for Russia's military capabilities.
2. Red Flag Indicators
The Guidance sets out red flag indicators of potential export control and sanctions evasion, such as sudden changes in business activity after February 24, 2022 (including new importers or exporters of CHPL items), false declarations, misclassification of goods, undervaluation, circuitous routing of shipments, and inconsistent trade documentation. Suspicious customer information and last-minute changes to transaction parties are also red flags.
3. Establishing Best Practices
Companies are called upon to implement best practices in relation to due diligence and ongoing monitoring in response to such deceptive tactics. Apart from restricted party screening, the Guidance encourages in-depth due diligence such as inquiring about the end use, end user and/or ultimate country of destination, conducting open-source research, and requesting written certification from customers. Where red flags are identified, further analysis should be undertaken. If a bona fide rationale or legitimacy of the transaction cannot be established, companies should refrain from the transaction.
Given their geographical proximity to Russia, Asian companies are at higher risk for diversion as Russia is ever more reliant on complex transnational structures to circumvent sanctions and procure critical technology and manufacturing components for its weapons production. This has drawn scrutiny from sanctions authorities. For example, on October 30, 2024, the U.S. Treasury Department sanctioned 275 individuals and entities across 17 jurisdictions, including India, the People's Republic of China (PRC), Switzerland, Thailand, and Turkey, for their roles in the evasion of Russian sanctions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
