New guidance a reminder to review sanctions procedures

The first guidance note is designed to “support UK exporters in understanding Russian circumvention practices and in reducing the risk of their business being targeted by those seeking to evade sanctions”, and follows on from guidance issued by the G7 in relation to Russian sanctions evasion and diversion last autumn. A second guidance note is focused specifically on helping UK exporters that wish to include a so-called “no re-export to Russia” clause into export agreements.

The guidance highlights that the tactics and methods used by Russia to evade sanctions continue to develop and adapt at pace and underscores the need for UK businesses, and their supply chains, to be aware of diversion risks and where these could lie within their business.

Both guidance notes highlight the need for businesses to regularly review their sanctions procedures and controls to ensure they remain fit for purpose as the methods used to circumvent sanctions develop.

According to OTSI, certain goods are at a higher risk of sanctions evasion – from ball bearings to a range of electronic and communications equipment – while OTSI has also outlined a non-exhaustive list of items from UK companies and goods in particular sectors that are also likely to be targeted, from a wide range of industrial machinery, plant and laboratory equipment, instruments for aeronautical and radio navigation, to motor vehicles, engines, and vehicle parts.

The guidance also flagged the risk of goods being purchased within third countries and subsequently re-exported to Russia and UK businesses are encouraged to conduct enhanced due diligence when exporting at-risk items to or from, or to third parties, in countries which include China, India, the UAE, Türkiye and countries in central and south-east Asia.

OTSI has highlighted how risks might materialise in a typical procurement cycle, including the use of front companies and intermediaries. It said: “Organisations often use a layered approach to conceal their procurement activities. Closer scrutiny of intermediary companies and apparent end-users can uncover discrepancies.”

Though it is for businesses to determine their sanctions exposure and to implement risk-based sanctions procedures and controls, the guidance includes some suggestions to assist in mitigating the risk of sanctions circumvention, including conducting a strategic risk assessment, implementing enhanced due diligence, use of screening tools, and ongoing monitoring.

OTSI said UK businesses should ensure that their sanctions procedures and controls extend to any overseas subsidiaries and factories, as there is a risk that these could be targeted to circumvent sanctions.

OTSI also addressed contractual controls. In the UK, there is no legal requirement under the UK’s Russia (Sanctions) (EU Exit) Regulations 2019 to include “no re-export to Russia” clauses in export agreements, unlike in the EU, but OTSI has nevertheless suggested a template clause in its guidance and said it considers these can serve as a deterrent against the redirection of goods to Russia.

Rebecca Devaney, Associate in Pinsent Masons’ Global Investigations and Sanctions team