To kick-start 2025, the UK’s recently established Office of Trade Sanctions Implementation (“OTSI”) has published two related guidance notes for UK exporters on Russian trade sanctions evasion and diversion.

First, Countering Russian sanctions evasion – guidance for exporters seeks to support UK exporters and manufacturers in identifying Russian evasion practices and mitigating the risk of their goods being diverted and re-exported to Russia in circumvention of UK sanctions and export controls.

  • Higher-risk goods: OTSI’s guidance focuses on:
    • the Common High Priority List, a list of particularly sensitive items that pose a heightened risk of illegal diversion to Russia and subject to multilateral attention from across the G7; and
    • broader categories of goods which the UK Government believes Russia seeks to procure from UK companies, often via third countries, to support its military and industrial capabilities (including, among others, industrial machinery, vehicles, and computer monitors).    
  • Higher-risk jurisdictions: OTSI has also prepared a list of jurisdictions which, based on an analysis of trade flow data, it considers to represent an elevated risk of diversion. Presently the non-exhaustive list (which will be updated periodically) includes: Armenia, China (including Hong Kong and Macau), India, Israel, Kazakhstan, Kyrgyzstan, Malaysia, Mongolia, Serbia, Thailand, Türkiye, UAE, Uzbekistan, and Vietnam. Exporters of the above higher-risk goods are encouraged to conduct enhanced due diligence on customers based within such geographies. 
  • Circumvention red flags: OTSI outlines potential red flag indicators of export control and sanctions evasion, broadly grouped along the lines of inconsistencies concerning the product, customer, transaction, and export destination (summarised in the table below).
  • Due diligence best practice: OTSI provides suggestions to assist businesses with mitigating the risk of Russian circumvention, including:
    • Undertaking a strategic risk assessment which maps business transactions, prioritising those involving higher-risk products for more extensive due diligence, and then designing and implementing controls and processes to mitigate a company’s specific risk.  Key processes should include targeting customer ownership diligence, verifying end use and having additional safeguards for higher-risk product lines.
    • Ensuring any overseas operations are subject to appropriate oversight and to consider implementing additional controls on the flow of goods from overseas sites.
    • Undertaking careful due diligence on transactions involving higher-risk products and export destinations, which includes:
      • enhanced know your customer checks (to include ownership checks and full sanctions screening);
      • verifying the purpose of the transaction (namely, accuracy of identified end user, role of any third parties, looking for irregularities in payments and shipping routes); 
      • cross-checking against company record databases and other independent sources; and
      • using screening tools when conducting due diligence (OTSI links to various open databases).
    • On-going monitoring of transactions. In particular, OTSI notes how tracking a business’s trade flows and buyer patterns over time may reveal significant shifts in the export of higher-risk products to specific destinations, indicating possible diversion to Russia.

Second, in parallel, OTSI’s No-Russia clause guidance aims to support exporters who wish to insert a “no re-export to Russia” clause in their export contacts with customers based in third countries.  Unlike the EU, which has legally required exporters to insert a “no re-export to Russia” clause into certain export contracts (see Art. 12g of Council Regulation (EU) 833/2014), the UK is not presently mandating the inclusion of such clauses.

Nevertheless, for those UK exporters who are either interested in voluntarily including a clause, or that are doing so because they are subject to the EU rules, OTSI has prepared template contractual language which prohibits the re-export of sanctioned goods to Russia, embeds requirements for buyers to monitor their downward commercial chain and inform the seller of any issues, and makes any violation a material breach of the overarching agreement, entitling the seller to appropriate remedies (including contract termination).

OTSI reiterates that while including such language in contracts can be a useful tool to counter circumvention risk, it does not replace the need for strong due diligence and on-going monitoring.

OTSI’s guidance is consistent with guidance issued by peer G7 regulators, including the United States, on potential Russian sanctions evasion and diversion risk. See, for example, G7 Guidance on Preventing Russian Export Control and Sanctions Evasion, EU guidance on implementing due diligence to shield against Russia sanctions circumvention and FinCEN and BIS’s Joint Alert on Potential Russian and Belarusian Export Control Evasion Attempts.

Given that OTSI has civil enforcement powers and can determine most breaches of trade sanctions on a strict liability basis, it is critical that exporters do put these guidance recommendations into practice and establish robust due diligence and monitoring processes in order to mitigate the risk of their products being indirectly supplied to Russia in potential breach of UK sanctions. This is especially the case for companies operating in higher risk sectors.

We expect that OTSI will continue to publish more guidance throughout the course of 2025 and we await to see how aggressive it will be in investigating and enforcing UK trade sanctions breaches.  

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CategorySummary of Red Flag Indicators
ProductInvolves military or dual-use applications or goods on the common high priority list.
Product does not fit the apparent end-user’s line of business or the technical level of the apparent destination, e.g., semiconductor manufacturing equipment being shipped to a country that has no electronics industry.
CustomerCustomer supplies restricted or high-risk goods (especially when to higher risk destinations). 
Customer has connections with sanctioned persons/entities, other connections to Russia (e.g. branch office), or operates in countries where Russia operates procurement networks.
Customer is associated with companies that are suspected or known to be selling sanctioned goods or technology to Russia, based on publicly available sources.
Similarities to persons on the UK Sanctions List (may also include similar addresses or telephone numbers). Customer shares premises or registered address with multiple businesses dealing in comparable goods (could suggest the use of multiple front companies).
Company address provided is a residential address.
Customer utilises complicated structures to conceal their involvement in transactions, e.g., letters of credit, front companies, intermediaries, or brokers; or other trust arrangements.
Customer had a change of ultimate beneficial ownership shortly before or after sanctions were imposed, or there was a transfer of shares from sanctioned entities to non-sanctioned entities incorporated by the same individuals or entity.
Sudden changes in business activity after 24 February 2022, or after any subsequent changes in export controls or sanctions, or a company operating in higher risk industry that was incorporated overseas after 24 February 2022.
New customers who are also apparently new to the market and seeking a high-risk product.
Significant changes to the company structure of an existing customer, e.g., acquisition by another company or individual, change of location, change of operations, or a significant change in registered directors.
Anomalous increases in the volume or value of orders placed by existing customers.
Shipping route or product concerned is inconsistent with expected business activity.
Customer has little to no business background and/or is unfamiliar with the product’s performance characteristics but still wants the product.
Customer attempts to obfuscate the product’s ultimate destination and purpose by any means including being vague about details, providing incomplete information, or is evasive when further information is requested.
All communications are routed via a representative who seems to possess general power of attorney, or senior management staff are never available for discussions when requested.
Research indicates that the customer or other parties to the transaction have military connections.
TransactionPayments from entities located in third countries which are not otherwise involved in the transaction.
Requests to use a non-standard payment route, e.g., outside of SWIFT, via smaller overseas banks, or using cryptocurrency.
Customer is willing to pay cash for an expensive item when the terms of sale would normally require financing.
Dividing an invoice value into smaller amounts to remain under export control limits, or an otherwise anomalous approach to structuring payments.
Customer pays significantly above the known market rate for goods.
Last-minute changes to parties involved in the transaction from an entity in Russia or Belarus to one in another country.
Country of the stated end-user is different to country from which the order was placed.
Country codes of customer telephone numbers do not match those of the destination.
Payments or transfers to importers, exporters, agents or brokers that export to countries and ports near the Russian border.
Supporting documents do not list the actual end-user, are otherwise vague, or provide incomplete or inconsistent information.
Indirect transactions (e.g., using intermediaries or shell companies) with no clear economic rationale.
Customer has little to no web presence. False, inaccurate, or missing documentation, or any indications or suspicion that documentation is fraudulent.
Any indications or suspicion of attempts to record goods under a false HS code not subject to sanctions or export controls.
Customer declines routine installation, training, or maintenance services associated with the product.
Vague delivery dates, or deliveries planned for remote destinations.
Disproportionate delivery costs are charged without a clear or justified reason.
The use of ship-to-ship transfers.
A freight-forwarding firm is listed as the product’s final destination.
Using multiple third-country freight forwarders or shippers on a single transaction.
Export destinationDestined for or transiting a country for which additional due diligence is suggested.
Destination country is actively engaged with a sanctioned country.
Shipments involving individuals, companies, or a shipment route located in a country with weak export control laws.
Using an unclear transportation route, or complex route involving multiple third countries.
Transporting an item through Russia to a final destination elsewhere.
Sales data indicates a significant increase in exports of product to a third country.

Introduction

Section 232 of the Trade Expansion Act of 1962 serves as a critical U.S. trade policy tool designed to safeguard national security by regulating imports. The provision grants the President the authority to impose tariffs or other trade restrictions on imports that threaten national security. The underlying rationale is that certain imports could undermine domestic industries vital for national defense and infrastructure. This post provides background on the key aspects of Section 232, including its history and the exclusion process.

Section 232 History

Origins and Process

The Trade Expansion Act, signed into law by President John F. Kennedy in 1962, aimed to reduce tariffs, increase trade, and stimulate economic growth while also balancing the need to protect national security and critical domestic industries. Section 232 originated from the broader legislative effort to enhance U.S. economic growth and promote trade liberalization.

Before the President can impose import restrictions, Section 232 requires the Department of Commerce (“Commerce”) to investigate to determine the import’s effect on national security. After an investigation, Commerce must make an affirmative determination that the imports threaten U.S. national security. If Commerce finds no effect on national security, the President is informed that no further action is required. However, when Commerce determines there is a risk to national security, the President is notified and has 90 days to determine whether he/she agrees with the finding and decide on the actions to be taken. Under Section 232, the President has broad authority to impose tariffs, quotas, or exclude products or countries entirely. The decided action must be implemented within 15 days, and Congress must be notified.

Between 1962 and 2020, Commerce initiated 31 Section 232 national security investigations. In 14 instances, Commerce determined there was a national security threat. The President acted only nine times. Five of these investigations identified national security risks related to petroleum products and crude oil, resulting in embargos on crude oil from Iran in 1979 and Libya in 1982. Notably, the last time a president imposed tariffs or trade restrictions under Section 232 before the Trump Administration was in 1986.

Modern Application and the Exclusion Process

The Trump Administration

The Trump Administration launched eight Section 232 investigations covering the imports of steel, aluminum, automobiles (including SUVs, vans, and light trucks), automotive parts, uranium, titanium sponge, electrical transformers and certain grain-oriented electrical steel components, mobile cranes, and vanadium. On March 8, 2018, President Trump announced tariffs on certain steel and aluminum imports based on the Secretary of Commerce’s findings. The tariffs, set at 25% for steel and 10% for aluminum, took effect on March 23, 2018, with provisions for flexibility regarding specific countries and products.

The Exclusion Process

Due to increased steel and aluminum costs from Section 232 tariffs, some U.S. manufacturers struggled to compete with importers of finished products. To mitigate these impacts, in 2018, Commerce introduced an interim final rule allowing U.S. parties to request exclusions for items that are not “produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality.” By February 7, 2021, Commerce received 288,021 exclusion requests—260,450 for steel and 27,571 for aluminum. Of these, 170,084 were granted, 59,134 were denied, and 44,325 were rejected or withdrawn.

The process for submitting exclusion requests has evolved over time. On June 10, 2019, Commerce announced the “Implementation of New Commerce Section 232 Exclusions Portal,” requiring that all new exclusion requests be submitted through the 232 Exclusions Portal. The new portal replaced the use of the Federal rulemaking portal (http://www.regulations.gov) and was designed to streamline the exclusions process. The Exclusions Portal enables individuals or organizations that submit 232 exclusion requests to view all requests, objections, rebuttals, and surrebuttal documents in one web-based system.

As part of the exclusion request process, there is a 30-day public comment period after Commerce posts a request. During this period, any U.S. manufacturer of the relevant articles can object. If objections are received, the requester can submit rebuttals to each objection. Objectors can then submit surrebuttals to these rebuttals. After these steps, Commerce’s International Trade Administration (ITA) reviews all information and provides a recommendation to the Bureau of Industry and Security (BIS), which then conducts a final national security review to make a decision.

Analysts expect that President Trump’s incoming administration will swiftly fulfill his promises to impose tariffs. With President Trump’s commitments to levy tariffs on imports from China, Section 232 is anticipated to remain a crucial tool.

Crowell and Moring, LLP continues to monitor developments in the customs and trade remedies space and their potential impact on businesses and customers.

On January 3, 2025, President Biden issued a National Security Memorandum (NSM) to update policy guidance for the Government of the United States’ implementation of the Missile Technology Control Regime (MTCR).  The NSM directs the relevant executive branch agencies to provide increased flexibility for case-by-case review and facilitate support for certain MTCR Category I military missiles, unmanned aerial systems, and space launch vehicle (SLV) systems to certain partners with strong export control systems.

However, the NSM explicitly excluded transfers of complete production facilities that encompass all capabilities necessary to produce a Category I system independently.

As a result, transfers of MTCR Category I SLV related commodities, software, and technology will be considered on a case-by-case basis for select and vetted partner space programs and participation in international space programs, whether such programs are governmental or commercial in nature.

Crowell & Moring, LLP continues to monitor export control developments and their potential impact on customers and businesses going forward.

Prepare for potential cost increases and delays in megaprojects arising from proposed tariffs in a second Trump administration by leveraging proactive risk management strategies and contract adjustments.

Click here to continue reading the full version of this alert.

On January 2, 2025, the U.S. Department of Defense (DoD) updated the 1260H List of entities identified as “Chinese military companies” (CMC) operating in the United States, as required by section 1260H of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2021 (Section 1260H), adding new entities and removing others.  The updated 1260H List now includes 76 entities.

Click here to continue reading the full version of this alert.

On January 6, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Syria General License 24, which authorizes transactions with governing institutions in Syria and certain activities related to energy and personal remittances. OFAC explained it issued General License 24 in light of the collapse of Bashar al-Assad’s government and to support the Syrian people with maintaining essential services and continuity of governance functions in Syria. 

 OFAC issued the general license to authorize activities that would otherwise be prohibited pursuant to the Syrian Sanctions Regulations, the Global Terrorism Sanctions Regulations, and the Foreign Terrorist Organizations Sanctions Regulations.  By authorizing transactions with governing institutions in Syria, subject to some conditions and exceptions, even if a designated individual has a leadership role in that governing institution, the new GL helps address sanctions issues that would arise as a result of  Hay’at Tahrir al Sham (HTS), a designated foreign terrorist organization and specially designated global terrorist, taking control of the Syrian government. However, OFAC makes clear that HTS, the Government of Syria, and the Central Bank of Syria remain sanctioned persons and does not unblock any HTS, Government of Syria, Central Bank of Syria property or interest in property.  

To provide further clarity, OFAC released eight new FAQs (1205–1212) and updated an existing FAQ (227) addressing these recent changes. A detailed overview of the updates can be found on OFAC’s Recent Actions page. 

The Office of the United States Trade Representative (“USTR”) opened its exclusion request process on October 15, 2024, allowing for importers to request temporary exclusion from Section 301 tariffs on certain Chinese machinery and equipment. The purpose of this exclusion process is to encourage US manufacturing by permitting machinery to be imported duty-free.  This process includes over 300 tariff subheadings in chapters 84 and 85 of the Harmonized Tariff Schedule of the United States (“HTSUS”). The portal to request temporary exclusion is set to close on March 31, 2025.

After a request is filed to the USTR online portal, interested parties have an opportunity to voice their opposition of support within 30 days of posting. Following any comments from interested parties, the requesting party has an opportunity to respond within 15 days after posting. Determinations of the exclusion requests will be periodically announced by USTR and granted exclusion requests will be announced in the Federal Register. If granted, the exclusion will be in effect from the date of publication to the Federal Register, through May 31, 2025.

To date, 186 exclusion requests have been submitted. However, none have been granted or denied, as all the exclusion requests currently posted are either open to public comment or are under review by USTR.

Crowell & Moring LLP will continue to monitor trends for granted exclusions requests, as well as the status of this exclusion request process upon the upcoming administration change in January 2025.

On December 16, 2024, the U.S. Department of Commerce published the final rule for Regulations Enhancing the Administration of the Antidumping and Countervailing Duty Trade Remedy Laws. Commerce’s final rule revised certain AD/CVD provisions, including those related to filing requirements, the application of cash deposits, indicators used in surrogate country selection, the application of antidumping rates in non-market economy proceedings, and the selection of examined respondents. The purpose of the amendments is to improve Commerce’s administrative processes, codify existing practices, and increase transparency around Commerce’s AD/CVD procedures and calculations.

Among the updated rules include modifications to how Commerce selects surrogate countries for respondents in non-market economies. Previously, Commerce chose surrogate countries on the basis of per-capita gross national income (GNI). Under the final rule amendments, Commerce will place primary emphasis on per capita gross domestic product (GDP) when selecting surrogate countries that are economically comparable to a nonmarket economy.

Additionally, Commerce revised its proposed separate rate regulation in this final rule. If Commerce determines that an entity in a third country is owned or controlled by a non-market economy government and that entity exports subject merchandise to the U.S., Commerce may determine to assign that entity a nonmarket economy entity rate. In this final rule, Commerce further clarified how it will determine if a nonmarket economy government controls an entity located in a third country, and under what circumstances entities will be subject to either a nonmarket economy rate or a separate rate.

In total, there were over twenty modifications made to the provisions in this final rule. The amendments are effective January 15, 2025.