UK issues red flag guidance to combat Russian sanctions evasion
The United Kingdom has banned billions in trade with Russia, but Moscow continues to circumvent sanctions to procure military and dual-use goods through third countries, the government said in fresh guidance to businesses. It names 12 high-risk jurisdictions that require greater due diligence, including China, India, Turkey and the United Arab Emirates.
The updated guidance by the Department for Business & Trade and Office of Trade Sanctions Implementation highlights that over £20 billion, equivalent to $26.5 billion, of UK trade with Russia is now sanctioned, but Moscow continues to procure Western military, dual-use and other critical goods through third countries.
The document identifies China, India, the United Arab Emirates, Turkey, Kazakhstan and seven other countries as jurisdictions requiring enhanced scrutiny for exports of sensitive goods, while emphasising the UK government remains ‘fully supportive of trade with these countries where the end destination is not Russia’. Companies should conduct additional oversight when exporting at-risk products to those countries as well as Armenia, Kyrgyzstan, Malaysia, Serbia, Thailand, Uzbekistan, and Vietnam.
The notice also cites deceptive sanctions-evasion tactics by Russia, such as the use of indirect shipping routes, deliberate falsification of the end uses of traded goods, and professional evasion networks to circumvent export controls.
James Neale, senior associate at law firm HFW in London, said managing compliance while maintaining legitimate business presents challenges for companies, ‘particularly as bad actors are using increasingly sophisticated methods to circumvent sanctions’.
‘The key step, as recommended in the guidance, is to perform detailed and comprehensive risk assessments to ensure that the appropriate level of scrutiny is applied to the right areas of the business,’ he advised. ‘Well-designed processes and cultural buy-in to compliance help both to protect the business and ensure that opportunities are not lost to delay or disproportionate checks.’
The government’s guidance highlights goods at heightened circumvention risk, including items from the Common High Priority List developed with EU, Japanese and US partners. The 50-item list includes integrated circuits, electronics components, mechanical components, and manufacturing equipment divided into four tiers of sensitivity.
Additional UK goods targeted for diversion include plant and laboratory equipment, instruments for aeronautical and radio navigation, motor vehicles, engines, and vehicle parts, oil lubricants, printing inks, paints and varnishes as well as ‘a wide range of industrial machinery’, according to the guidance.
The government outlined dozens of red flag indicators when dealing with customers, including businesses that have ties to a sanctioned entity or person, companies sharing premises with multiple businesses dealing in comparable goods, and entities with sudden changes in business activity since sanctions were imposed on Russia following its February 2022 invasion of Ukraine.
Transaction red flags include payments from third-country entities not involved in deals, requests for non-standard payment routes outside of SWIFT, via smaller overseas banks or using cryptocurrency, and customers willing to pay cash for expensive items.
Companies must recognise that ‘the sanctions apply to both direct and indirect transactions, so you need to know who your customer’s customers are,’ Neale explained. ‘The guidance is clear that due diligence is an ongoing obligation and is not confined to onboarding or contract renewals,’ he added.
Neale noted that more than three years after the outbreak of the war in Ukraine, we are seeing frequent updates to both sanctions lists and the types of goods being targeted, as well as developments in sanctions evasion methodologies.
‘Staying on top of these changes is challenging but is fundamental to effective sanctions processes,’ he stressed.
The government’s guidance recommends businesses implement strategic risk assessments, enhanced know-your-customer processes, and regular screening using external databases including Open Sanctions, War Sanctions portal, and the Trade Integrity Project database.
Companies following government guidance may still face criminal exposure if their goods reach Russia, but sturdy compliance procedures could provide legal protection, Neale explained.
‘Robust and well-implemented sanctions policies and procedures both help to manage the risk that an inadvertent sanctions breach occurs in the first place, and may also serve as a strong argument in mitigation in the event something does go wrong,’ Neale observed. He warned that UK authorities ‘are clear that perfunctory checks are not good enough, and are likely to have regard to the due diligence steps they believe the company should have taken when setting their enforcement response.’
