Practical guidance for companies to detect and prevent circumvention of sanctions

Companies play a key role in the enforcement of sanctions and in preventing circumvention of sanctions. The Ministry for Foreign Affairs has published practical expert guidance to companies on how to detect and prevent circumvention of sanctions on the MFA Russia sanctions webpage. The guidance provides practical advice on carrying out risk assessments and sanctions compliance. The guidance includes a list of red flags that the company can use when assessing concrete cases of foreign trade. The guidance includes links to the lists published by the Commission of products of particular relevance for the enforcement of sanctions.

The EU's sanctions against Russia are the EU's widest and most cross-cutting sanctions ever. The enforcement of sanctions belongs to everyone – citizens, businesses, municipalities, cities and authorities. No end is foreseen to the enforcement of sanctions, says Pia Sarivaara, Team Leader of the Foreign Ministry Sanctions Team.

Sanctions are working, but the circumvention of sanctions through third countries poses an enforcement challenge, especially for the EU's border states.

According to the Bank of Finland Institute for Emerging Economies, sanctions, as a whole, have significantly reduced Russian imports in many products subject to sanctions. It is difficult to assess the circumvention of sanctions, but foreign trade statistics provide indications of possible circumvention of sanctions through third countries.

For example, the export of various electronic components used in military technolog and he so-called high priority battlefield items from the EU to Russia has stopped as the result of sanctions. At the same time, however, exports of these goods from the EU to CIS countries and from CIS countries to Russia have increased sharply. After the start of the war of aggression, the value of EU exports of these goods to CIS countries corresponds to about 8% of pre-war exports to Russia. However, in some individual goods the proportion is considerably higher, up to 80%. The risks are high, especially for Border States. Since the beginning of the war, Finland's share of EU exports of these goods to CIS countries has almost tripled.

According to Sarivaara sanctions enforcement is hampered by the extent and complexity of sanctions, but also by the numerous attempts to circumvent sanctions. In the case of individual sanctions, the biggest challenge are the complex corporate structures and arrangements – ownership is covered by offshore structures. In sectoral sanctions, there are attempts to circumvent the export or import prohibitions, for example, by concealing the origin of the product by delivering them via third countries. In addition, the sectoral sanctions are being circumvented by using delivery chains, lowering the value of the product (e.g. luxury products) or to changing the customs code. Parties registered in third countries may have agreements with Russian authorities.

The role of companies in the enforcement of sanctions cannot be overemphasised

Companies play a key role in the enforcement of sanctions and in preventing the circumvention of sanctions in foreign trade, emphasizes Sarivaara. To support this challenging task for companies, the Ministry of Foreign Affairs has published practical guidelines for companies to identify and prevent circumvention of sanctions. The company is instructed to carry out an adequate risk assessment and to identify its customers in order to ensure that the company does not engage in prohibited trade with sanctioned entities or entities representing them. With regard to imports, it is also necessary to ensure that the country of origin of the product has not been changed and that the product is not indirectly imported from Russia.

According to the European Commission, companies should pay particular attention to the products used by Russia in the war of aggression and to products promoting Russia's industrial capacity. The Commission has published lists of these products, whose prevention of export and re-export is a priority. Manufacturing and resale companies should, at the time of sale, carefully determine the end user and country of destination of the products. Companies can make use of the above-mentioned Commission lists in their own risk assessments.

“It is clear that risk assessments and investigations related to compliance with sanctions take time”. Sarivaara recommends that companies document their risk assessments and compliance work, and if necessary, make use of external expertise in the process.

Companies should identify cases of circumvention of sanctions and report them to the authorities.

Violations of sanctions legislation are criminalised under the Criminal Code. The authorities have several tools to intervene in the circumvention of sanctions. Sanctions may be imposed also on those who circumvent or assist in circumvention or evasion of sanctions. There are already companies operating in Russia and in third countries on the so-called export ban lists, which means that export licences are not granted for export to these companies. As part of the latest sanctions package, the EU adopted a mechanism to prohibit European companies from exporting certain products to third country companies in the future.

It is good to report to the authorities on the circumvention of sanctions and attempts to circumvent them, says Sarivaara. At the end of the published guidance, contact information is provided for this purpose.

The expert guidance is intended to be used in the practical work of companies, states Sarivaara. When necessary, the guidance will be updated. The guidance is not binding in nature. This is a memorandum drawn up at expert level, in the preparation of which the instructions and findings on the circumvention of sanctions of the various EU and Member States authorities have been used.

“The aim of the guidance is to support companies in conducingt responsible business. We hope to receive feedback on the usability and usefulness of the guidance. Proposals to amend the guidance are also welcome.”

The guidance has been prepared in cooperation with the Border States (Estonia, Latvia, Lithuania, Poland). The Border States are under particular pressure with regard to sanctions enforcement, as the EU's foreign trade eastward mainly pass through the Border States.

Guidance for companies:

• Detecting and Preventing Sanctions Evasion and Circumvention in Trade – Practical Guidance for Economic Operators (word, 13 pages)

Commission´s lists:

• List of High Priority Battlefield Items(Link to another website.) (pdf, 3 pages)
• Economically Critical Goods List (Link to another website.)