This notice serves as a guidance note for companies, providing them with essential information to ensure compliance with Russia sanctions. The purpose of these sanctions is to discourage actions by Russia that destabilize Ukraine or threaten its territorial integrity, sovereignty, or independence. They encompass financial, trade, aircraft, shipping, and immigration sanctions.
Trade sanctions seek to deny Russia access to the goods, technologies and revenue necessary to pursue its illegal war. The aim of this notice is to prevent the undermining of trade sanctions, export controls, and other restrictive measures designed and implemented in response to Russia’s invasion of Ukraine. Awareness of the risk and obligations in relation to sanctioned goods is an important first step for trade.
Direct trade between the UK to Russia has fallen significantly since sanctions were introduced. However, Russia will seek to procure restricted goods via other routes. As such, there are risks around displacement of trade and diversion of goods to Russia.
Traders should ensure that as part of their due diligence they consider these risks.
The true end-users of procured goods are unlikely to approach international suppliers directly or be named as end-users on paperwork. Instead, organisations often use a layered approach to conceal their procurement activities. Closer scrutiny of intermediary companies and apparent end-users can uncover discrepancies.
Strong due diligence on counterparties and internal governance in relation to sanctions is essential. Even on established counterparties, due diligence will need to be repeated at intervals to ensure that the risk has not changed; for example, change of directors/change of products traded, etc.
The procurement cycle below illustrates the different stages and types of entities likely used to acquire goods covertly. Not all stages may be used in every procurement attempt. Using this model, the end-user typically uses a ‘cover’ or ‘front’ company to request goods from networks of complicit intermediaries.
1. International suppliers
Commodities from a range of industrial fields are sourced from specialist manufacturers or distributors.
(Overseas) Trading companies could be complicit but probably has legitimate business too. May claim to be the end-user, or name another intermediary or cover company.
3. Cover/front company
An entity acting entirely on behalf of the sanctioned entity. May be a registered business, or may be solely a cover name. These companies may be seen named in international trade paperwork.
4. The true end-user
A sanctioned destination, person or organisation.
Risks need to be considered in the circumstances of individual companies and due diligence/internal governance tailored accordingly. These can be broadly grouped by customer, product and location. There are a number of initial risk indicators below. This list is not exhaustive and the examples below are intended to be indicative.
For detailed information, please refer https://www.gov.uk/government/publications/notice-to-exporters-202308-russia-sanctions-trade-sanctions-circumvention