Recent U.S. Sanctions, Export Controls On Russia And Belarus Underscore Compliance Concerns In International Transactions


Highlights

Companies should consider reviewing new sanctions and export controls targeting Russia’s mining and metals sectors, hundreds of individuals and entities in and outside of Russia, and changes to low-level items requiring a license for Russia and Belarus

New U.S. government guidance highlights diversion and evasion risk for international transactions

Companies should expect robust enforcement as the U.S. continues to find new ways to partner with allies to combat sanctions evasion tactics

A number of recent actions by the U.S. government increase the restrictions related to Russia and Belarus trade sanctions and highlight the risk for companies doing business even in unrelated countries. These actions include: 

  1. Additional sanctions and export controls targeting Russian and Belarus in specified sectors, designation of individuals and entities supporting Russia’s war effort, and augmented export controls targeting particular goods and industries. These actions follow several prior rounds of Russia-related sanctions and export controls on Russia and Belarus and result in a complex web of restrictions that companies need to understand and navigate;

  2. The publication of cross-agency guidance concerning Russia’s use of third-party intermediaries and transshipment points to evade U.S. sanctions; and

  3. The U.S. participation in the Group of Seven (G7) nations’ Enforcement Coordination Mechanism, one of many ways the U.S. is working cross-border to identify potential violations and enforce its sanction and export controls laws.

New Restrictions Implemented on One-Year Anniversary War in Ukraine

On Feb. 24, 2023, one year after Russia began its war on Ukraine, the U.S. government, working together with G7 leaders, announced the imposition of new trade and economic restrictions on Russia and Belarus. These actions included:

Cross-Agency Guidance on Sanctions Evasion

On March 2, 2023, BIS, OFAC, and the U.S. Department of Justice jointly published compliance guidance called Cracking Down on Third-Party Intermediaries Used to Evade Russia-Related Sanctions and Export Controls. This guidance warns companies to be vigilant against sanctions and export controls evasion attempts, noting that “[b]usinesses of all stripes should act responsibly by implementing rigorous compliance controls, or they or their business partners risk being the targets of regulatory action, administrative enforcement action, or criminal investigation.” 

In particular, companies should consider reviewing the enforcement actions highlighted by the agencies in the guidance, as well as the detailed list of common red flags indicating potential sanctions evasion attempts. Examples of such red flags are:

G7 Nations Announce Formation of Sanctions Enforcement Coordination Mechanism

Shortly after the one-year anniversary of Russia’s invasion of Ukraine in February, the leaders of the G7 nations announced the formation of an Enforcement Coordination Mechanism to bolster the compliance and enforcement of its sanctions and to prevent Russia for benefiting from the G7 economies. 

The G7 nations are the U.S., U.K., France, Germany, Canada, Japan and Italy. The group indicated that it would be taking measures against third-party nations that seek to evade their sanctions and that are providing material support to Russia’s war in Ukraine. The announcement states that the group is committed to preventing Russia from finding new ways to obtain advanced materials, technology and military industrial equipment that Russia can use to further violate international law. It also states that it wishes to reduce Russia’s energy revenue by building on already existing export bans. 

The G7 nations indicated they are working closely with key partners on further measures on Russian diamonds and would continue to impose targeted sanctions on those responsible for war crimes in Ukraine. 

This represents one more tool in the U.S. government’s enforcement arsenal, in addition to other enforcement efforts such as Task Force KleptoCapture and the Russian Elites, Proxies, and Oligarchs task force. 

Lessons for Companies

As Russia’s war against Ukraine continues, the U.S. government and its allies seek ways to challenge Russia’s efforts and heightened enforcement of these new rules is a U.S. priority. Thus, companies should consider reviewing their existing business activities involving Russia, Belarus, Ukraine and parties in the region, and be prepared for swift and persistent changes to U.S. sanctions and export controls. Companies should consider preparing for U.S. government inquiries into their transactions, even if not doing business in Russia or Belarus, as third-party intermediary risks are global.

Due to the evolving complexities of the trade restrictions, companies should consider reviewing and updating their compliance policies, and look to enhance screening suppliers and due diligence for business partners. In short, knowing your supply and distribution chains to avoid or mitigate disruptions as the rules evolve is key. 

Depending on the level of involvement with business conducted with Russia, sanctioned regions of Ukraine, Russia’s neighboring countries, or countries known to assist Russia, companies will want to stay on top of their end-use and end-user declarations and bolster supplier certifications to reduce exposure in current transactions. Additional sanctions and other trade restrictions are likely to endure and enforcement of these new rules will remain a priority to further isolate Russia and those who assist Russia as the war against Ukraine continues. 


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National Law Review, Volume XIII, Number 94