In recent weeks, there have been a number of noteworthy developments highlighting the increasing focus that US, EU, UK and other governments are placing on the potential circumvention of sanctions against Russia, and the roles of third countries and companies in facilitating the circumvention or undermining of such sanctions measures. These anti-circumvention efforts are taking place in the context of the G7’s concerted effort to bolster sanctions enforcement around the world, through the creation of the new Enforcement Coordination Mechanism (see our recent blog-post on this and an overview of the US’s enforcement focus here; we will be covering enforcement focus by other G7 jurisdictions in separate blog posts over the coming weeks).
With the Russian government and Russian businesses increasingly restricted from US, EU, UK and other markets and supply chains, a number of locations have come into focus as potential diversion hubs, and hubs for other Russian economic activity – including in the Middle East, Turkey, Africa and countries in Central Asia. This has prompted a concerted effort by US, EU, UK and other governments to impose pressure on companies operating in these jurisdictions, and to stop the sanctions measures from being sidestepped by targeted Russian parties – including through recently holding the first Sanctions Coordinators Forum in the UAE, attended by EU Sanctions Envoy, David O’Sullivan; U.S. Sanctions Coordinator, Ambassador Jim O’Brien; and the Director of the UK’S Sanctions Directorate, David Reed.
Building on top of existing sanctions measures that target a wide range of direct and indirect conduct (both in respect of financial sanctions and also trade sanctions), in recent weeks we have seen the following noteworthy measures targeting third countries and circumvention:
- As part of its 10th sanctions package (see our previous blog post here), the EU has sanctioned SUN Ship Management (D) Ltd, a Dubai-based ship management company that is part of the Russian company PAO Sovcomflot. This follows changes introduced to the EU’s designation criteria under the 8th sanctions package, making it easier for the EU to sanction “natural or legal persons, entities or bodies facilitating infringements of the prohibition against circumvention of the provisions” of the relevant EU sanctions measures targeting Russia.
- The EU’s 10th package also includes the addition of a number of Iranian companies to the list of entities directly supporting Russia’s military and industrial complex in its war against Ukraine, which are subject to tighter export restrictions regarding dual-use and other controlled goods and technology (given Iran’s role in the supply of drones to Russia).
- The EU has also enhanced the reporting obligations under Regulation 269/2014, its core legislation for imposing asset freeze restrictions on Designated Persons in respect of the Russia / Ukraine conflict, to require that EU persons must now immediately supply information on funds and economic resources belonging to, owned, held or controlled by Designated Persons that “have been subject to any move, transfer, alteration, use of, access to, or dealing” in the two weeks preceding the listing of the Designated Person in question.
- US Department of the Treasury Under Secretary Brian Nelson recently travelled to the UAE and Turkey, noting that OFAC “will continue to aggressively enforce its sanctions, and individuals and institutions operating in permissive jurisdictions risk potentially losing access to G7 markets on account of doing business with sanctioned entities or not conducting appropriate due diligence to guard against illicit finance risks” (link).
- The US (alongside the UK) recently listed MTS Bank PJSC as an SDN, after MTS received a banking licence last year from the UAE Central Bank to open a branch in Abu Dhabi.
- The US Department of Commerce, Department of the Treasury, and Department of Justice recently published a Tri-Seal Compliance Note (link) entitled “Cracking Down on Third-Party Intermediaries Used to Evade Russia-Related Sanctions and Export Controls”.
- The UK has also listed MTS Bank PJSC as a Designated Person, alongside the actions taken by OFAC.
- The UK’s recent press release for its forthcoming package of sanctions also notes significantly expanded export and import-related controls (link).
In addition to the expansive application of EU, US, and UK sanctions and related enforcement, companies based outside of these jurisdictions also need to be aware of sanctions compliance obligations imposed as a result of compliance-related commitments contained across commercial and financial agreements.
Baker McKenzie’s International Commercial and Trade team is uniquely placed to advise clients on the evolving challenges and sanctions risks that can arise from operating in jurisdictions that are emerging as potential hubs for sanctions diversion / circumvention, and which are increasingly in the spotlight of enforcement authorities around the world.
We have recently held seminars on emerging sanctions risks in this area for clients in Switzerland, Dubai and Abu Dhabi, presented by lawyers from across Baker McKenzie’s global network. We are also presenting a forthcoming session on this topic in Turkey in the coming months.
If you would like a copy of the slides from our recent sessions in Dubai and Abu Dhabi, please email Tessa Gromia at [email protected].