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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Category | Summary of Red Flag Indicators |
Product | Involves 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. |
Customer | Customer 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. |
Transaction | Payments 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 destination | Destined 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. |