US Agencies Outline Compliance Expectations to Thwart Russian Sanctions Evasion

The agencies said companies need to be “vigilant in their compliance efforts” and “act responsibly” to avoid aiding Russia, adding that the U.S. won’t “hesitate” to pursue prosecutions. Without “rigorous compliance controls,” companies and “their business partners risk being the targets of regulatory action, administrative enforcement action, or criminal investigation.”

Matthew Olsen, assistant attorney general for national security, said in a statement the guidance is meant to “convey the Department’s expectations as to national-security related corporate compliance.” It will be “incumbent upon industry to maintain effective, risk-based compliance programs,” said Matthew Axelrod, Commerce’s top export enforcement official.

One of the “most common” tactics Russia is using to evade sanctions and export controls is third-party intermediaries or transshipment points, the agencies said, which can help a sanctioned Russian company “disguise their involvement” in the transaction. The note specifically called out manufacturers, distributors, resellers and freight forwarders, which are often in “the best position to determine” whether a transaction or a customer’s activity “is consistent with industry norms and practices.” Those businesses “should exercise heightened caution and conduct additional due diligence if they detect warning signs of potential sanctions or export violations.”

Some red flags that may indicate Russian sanctions evasion include if customers use “corporate vehicles” or shell companies to hide ownership, or if a customer is “reluctant” to complete an end-user form, the agencies said. Companies should also be skeptical of customers that use shell companies to conduct international wire transfers involving banks in countries that are “distinct” from the company’s registration country, or companies that refuse “customary installation, training, or maintenance” of a purchased item.

Other red flags include IP addresses that are different from the company’s reported location, last-minute changes to shipping instructions, personal instead of professional email accounts, any activities that “obscure the ultimate customer” and transactions involving entities with “little or no web presence.” The agency said companies should also watch for purchases routed through points “commonly used to illegally redirect restricted items to Russia or Belarus,” including mainland China, Hong Kong, Macau, Armenia, Turkey and Uzbekistan.

The agencies also provided a list of tactics commonly used by companies to convince businesses to follow through with transactions, including claims that the items would be used only by entities “engaged in activities subject to less stringent oversight,” such as Russian space program entities as opposed to Russian military companies. Companies may also try to divide shipments into multiple, smaller exports, use aliases for end users, underestimate the purchase price on shipping forms and claim to do business on behalf of a U.S.-based shell company as opposed to a “restricted end user.”